A  CRITIQUE  OF  ECONOMICS 


THE  MACMILLAN  COMPANY 

NEW  YORK   •    BOSTON   •     CHICAGO   •    DALLAS 
ATLANTA   •    SAN  FRANCISCO 

MACMILLAN  &  CO.,  Limited 

LONDON   •    BOMBAY   •    CALCUTTA 
MELBOURNE 

THE  MACMILLAN  CO.  OF  CANADA,  LiD. 

TORONTO 


A  CRITIQUE  OF  ECONOMICS 


DOCTRINAL  AND  METHODOLOGICAL 


BY 
O.  FRED  BOUCKE 

Professar  of  Economics  at  Pennsylvania  State  College 

AUTHOR  OF  "the  LIMITS  OF  SOCIALISM"  AND  "THE  DEVELOPMENT  OP 

ECONOMICS,  1750-1900" 


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THE  MACMILLAN  COMPANY 

1922 

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PREFACE 

On  account  of  recent  developments  in  philosophy  and 
science  we  are  today  again  confronted  with  the  important 
question  as  to  whether  economics  is  really  a  science  or 
only  a  study  of  values  akin  to  philosophy  proper.  If 
economics  is  a  science  comparable  to  physics  or  chemistry, 
for  example,  applications  in  both  private  and  public 
life  may  be  possible ;  if  not,  the  practical  value  of  economic 
research  must  be  slight,  whatever  our  interest  in  it  on 
other  grounds. 

This  book  is  an  attempt  mainly  to  show  in  what  sense 
economics  may  be  called  a   science,   and  what   changes 
seem  necessary  to  bring  it  into  harmony  with  current 
facts  and  concepts  in  allied  fields.     The  first  part  is  en- 
tirely critical,  following  other  writers  who  have  broken 
with  either  Utilitarian   (classical  and  neo-classical)   or 
Marginal   economics,   or  with  both.      It  deals   with   the   ^ 
errors  of  the  old  psychology  on  which  economic  theorizing   % 
until  recently  was  based,  and  supports  the  well-known  _^ 
contention  that  economic  laws  so  far  have  been  not  so 
much  laws  as  proofs  derived  from  certain  more  or  less 
arbitrary  assumptions.    To  this  extent  then  the  first  part 
goes  over  familiar  ground  and  leads  simply  to  a  nega- 
tion. 

The  second  part,  however,  is  meant  to  be  more  than  a 
criticism.  It  seeks  to  make  clear  not  only  that  new  points 
in  method  must  be  stressed  if  old  premises  are  abandoned. 


viii  PREFACE 

but  also  that  this  question  of  method  must  be  connected 
with  current  views  in  psychology,  philosophy,  logic,  and 
ethics.  That  the  rejection  of  eighteenth  century  sensa- 
tionalism  would  prove  fatal  to  many  economic  **laws" 
might  be  taken  for  granted.  That  for  the  same  reason 
however  the  relation  of  induction  to  deduction,  of  statics 
to  dynamics,  of  statistics  to  induction,  or  of  economics  to 
ethics  should  also  be  restated  is  not  self-evident.  Yet 
this  is  the  belief  of  the  present  writer,  and  hence  his 
endeavor  to  sketch  in  outline  a.  new  methodology  of 
economics.  The  second  part  of  the  book  thus  is  construc- 
tive as  well  as  destructive,  and  has  a  bearing  on  all  social 
inquiries,  not  merely  on  economics. 

In  saying  this,  however,  the  writer  wishes  to  call  at- 
tention to  three  points : 

In  the  first  place  the  logic  of  the  principal  argument  in 
this  book  will  be  broken  if  its  several  chapters  are  not 
read  in  the  exact  order  here  given.  Any  departure  may 
lead  to  misunderstandings  with  regard  to  a  particular 
problem. 

In  the  second  place  the  approach  here  made  is  tentative, 
and  not  by  any  means  categorical,  in  spite  of  a  rather 
positive  tone  here  or  there.  It  is  virtually  impossible 
to  preserve  at  all  times  the  interrogatory  form,  however 
great  our  desire  to  admit  the  subjective  nature  of  all 
inquiry,  and  especially  of  a  critique  of  economics  passing 
through  a  transition  stage. 

In  the  third  place,  the  writer  of  these  lines  is  keenly 
aware  of  his  obligations  to  other  writers,  living  and  no 
longer  alive.  A  bibliography  has  been  appended  in  order 
to  indicate  partly  the  scope  of  this  indebtedness.     But  it 


PREFACE  ix 

will  necessarily  be  very  fragmentary.  For  the  rest,  there- 
fore, the  acknowledgment  must  be  implied  rather  than  ex- 
pressed.  It  is  the  text  which  shows  what  is  borrowed  and 
what  is  new,  and  to  this  the  expert  will  turn  in  making 
his  appraisal. 


CONTENTS 


CHAPTER 


PA0B8 


1.  The   Problem •  1-  39 

PART  I.     A  CRITIQUE  OF  ECONOMIC 
PRINCIPLES 

2.  Valuation            43-  76 

S.  Price 77-100 

4.  Distribution •      •      •  101-128 

5.  Production 129-140 

PART  II.    A  CRITIQUE  OF  ECONOMIC 
METHODOLOGY 

A  Restatement  of  the  Problem     •      •      •      •  143-146 

6.  Inference 147-163 

7.  Law  and  Causation 164-197 

8.  The  Methods  of  Science 198-235 

9.  The  Methodology  of  Economics  •      •      •      •  236-278 
10.  Lines  of  Reconstruction 279-288 

Bibliography 289-301 

Index .:     .;     m    m    :•:     .  303-305 


TABLES 

One:    Classification  of  Margins  Used  in  Marginal  Eco^ 

nomics      .  124 

Two:     Important  Margins  for  the  Distributive  Theory 

of  Marginal  Economics 125 

Three:    Logical  Order  for  the  Basic  Concepts  of  Eco- 
nomics as  a  Science 137 


A  CRITIQUE 
OF  ECONOMICS 

CHAPTER  ONE 
THE  PROBLEM 

How  Eoonamics  Became  an  Exact  Science. — The 
founders  of  economics  as  a  science  had  very  definite 
hopes  regarding  it.^  They  wished  to  show  that  laws 
prevailed  in  the  realm  of  psychics  no  less  than  in  that 
of  physics.  They  differed  from  the  Kameralists  and  Mer- 
cantilists in  that  they  cared  little  about  mere  descrip- 
tion of  individual  events  or  institutions,  and  much  about 
the  discovery  of  principles  which  should  make  applica- 
tions in  government  reliable  and  fruitful.  It  was  held 
by  the  Physiocrats  and  by  Adam  Smith  that  the  New- 
tonian system  could  not  stand  alone  in  the  cosmos,  that 
mind  and  human  actions  in  general  must  surely  have 
their  laws  too,  and  that  a  continuity  from  molecule  to 
man  was  part  of  the  plan  of  the  Creator. 

The  eighteenth  century  carried  on  the  work  of  the^pre- 
ceding  one  of  course,  and  there  was  a  great  variety  of 
beliefs  on  things  philosophical.  Most  of  the  viewpoints 
in  metaphysics  and  epistemology,  which  have  since  then 

*  Discussed  in  the  writer's  "Development  of  Economics,"  of  which 
the  present  book  is,  in  a  sense,  a  continuation. 

1 


Vthat 


2  A  c:riyique  of  economics 

come  to  definite  expression,  found  currency  in  one  form 
or  another  even  at  that  time.  It  would  be  wrong  to  say 
that  the  age  of  Voltaire  was  preeminently  materialistic, 
or  phenomenalistic,  or  empirical  or  rationalistic,  and  so 
on.  We  cannot  identify  so  broad  a  stretch  of  time,  at 
ticular  system  of  speculatign^J^ut  there  is  TTftdoufej^ 
ate  a  date  in  the  history  of  mankind,  with  one  par- 
that  the  men  who  made  out  of  Kameralism  a  science,  or 
essayed  to  do  so,  leaned  strongly  toward  a  monism  that 
coupled  mind  with  matter,  acknowledging  but  one  Design 
in  the  workings  of  organic  and  inorganic  existence,  and 
believing  implicitly  in  the  possibility  of  proving  social 
events  as  regular,  as  truly  subject  to  law  and  causation, 
as  the  substances,  the  forces,  that  had  been  studied  so 
successfully  by  Galileo  and  his  disciples.  The  fathers 
of  economics,  of  political  economy,  were  more  interested 
in  disclosing  laws  of  feeling,  valuation,  and  action  than 
in  devising  ways  and  means  for  filling  the  public  coffers. 
The  needs  of  the  state  were  not  slighted.  Nobody  over- 
looked them,  or  thought  them  unsuitable  for  study  by 
theorists.  The  eighteenth  century  was  so  filled  with  wars 
and  striking  changes  in  the  economic  environment  that 
public  revenue  and  expenditure  was  sure  to  form  a 
fascinating  topic.  But  on  the  other  hand  the  scientific 
spirit,  the  aim  at  a  formulation  of  laws  which  should 
show  what  governs  the  present  and  the  future — this 
thought  animated  most  of  the  men  who  lifted  economics 
out  of  its  obscurity,  developing  it  into  the  first  of  modern 
social  sciences . 

The  Physiocrats  were  outspokenly  materialistic  and 
stressed  the  circulation  of  wealth  as  a  counterpart  to  the 
circulation  of  blood  in  the  human  body,  both  correspond- 


THE  PROBLEM  3 

ing,  as  it  seemed,  to  the  orbits  of  the  planets  in  the 
cosmos.  This  naive,  physical  view  of  socio-economic  hap- 
penings had  its  disadvantages,  but  it  meant  from  the 
start  a  concern  for  the  thing-aspects  of  wealth,  for  the 
physical  volume  of  production,  for  progress  measured  by 
output  and  income  in  tangible  items  of  consumption ;  and 
this  was  a  wholesome  interest.  To  the  Scotch  philosopher 
who  published  his  "Wealth  of  Nations"  in  1776  the  Physi- 
ocratic  attitude  was  not  altogether  intelligible,  or  at  any 
rate  acceptable.  He  agreed  with  Quesnay  on  many 
points,  but  put  the  importance  of  labor  far  above  that 
of  the  fertility  of  the  soil,  and  furthermore  took  a  psycho- 
logical view  of  the  economic  process  that  has  dominated 
us  ever  since.  It  would  not  be  worth  while  to  rehearse 
the  circumstances  of  the  rise  of  the  science  of  economics, 
except  for  this  faith  in  laws,  equal  to  those  of  the  New- 
tonian, and  for  the  firm  belief  of  Naturalistic  economists 
since  Adam  Smith,  that  human  nature  is  the  basis  of  such 
laws.  The  fact  that  the  author  of  the  "Wealth  of  Na- 
tions*' had  much  earlier  written  a  "Theory  of  the  Moral 
Sentiments,"  while  other  British  thinkers  had  turned  out  a 
long  series  of  psychological  studies  both  from  a  moral 
and  a  logical  standpoint,  this  fact  should  never  be  for- 
gotten in  our  appraisal  of  economics  to-day,  especially 
when  we  contemplate  its  present  perplexities. 

Smith  first  emphasized  the  balance  of  forces  that  a 
wise  Providence  displayed  everywhere  in  the  universe.  He 
was  profoundly  impressed  with  a  play  of  forces  that 
meant  peace  and  prosperity  in  the  long  run.  He  opposed 
sympathy  and  altruism  to  self-interest,  and  derived  his 
cosmopolitanism  and  doctrine  of  Laissez  Faire  from  this 
inherent  goodness  of  human  nature.    Individualism  meant 


4  A  CRITIQUE  OF  ECONOMICS 

egotism,  but  also  solidarity  of  aims.  Human  nature  was 
the  foundation  of  all  wealth  and  its  augmentation.  What 
individuals  thought  and  endeavored  was  the  key  to  the 
principles  manifested  in  price,  income,  and  productivity. 
These  fundamentals  back  of  the  pricing  process  took  first 
place  in  the  consideration  of  things  human.  The  founders 
of  economics  insisted  more  upon  the  premises  of  their 
science  than  upon  the  principles  of  price  or  the  circula- 
tion of  wealth. 

Those  who  are  customarily  called  the  English  classics, 
to  wit  Malthus,  Ricardo,  Mill  (father  and  son)  and 
Senior,  were  just  as  objective  in  their  analysis  as  the 
Naturalists,  i.e..  Physiocrats  and  Smith.  The  facts  of 
economics  were  still  things  as  much  as  values,  and  the 
non-pecuniary  standard  was  conspicuous  in  the  writings 
of  the  time.  Physical  productivity  and  costs  as  ex- 
penditure of  time  or  of  tangible  goods  were  real  to  these 
Utilitarians — if  we  may  call  them  so  because  of  their 
hedonistic  psychology  and  ethics . 

But  they  differed  from  the  Naturalists  in  substituting 
price  and  factorial  shares  for  production  and  exchange. 
They  gave  a  preeminence  to  the  problem  of  price  and 
distribution  that  has  marked  economics  up  to  our  own 
day.  They  brought  in  such  concepts  as  labor-pain,  talked 
of  abstinence  as  an  element  in  rates  of  interest,  and  gave 
tjo  utility  a  higher  rating  as  a  determiner  of  price  than 
their  predecessors  could  have  allowed.  And  above  all, 
they  admitted  frankly  their  hedonistic  outlook.  What 
Bentham  and  others  before  him  had  said  in  explanation 
of  our  moral  codes  and  of  our  conduct  in  private  and 
public,  the  economic  Utilitarians  took  up  as  an  arcanum, 
a  precious  stdne  of  wisdom,  that  might  explain  the  opera- 


THE  PROBLEM  6 

tions  of  the  economic  system.  Sensationalistic  psy- 
chology colored  economics  from  the  turn  of  the  century 
on,  and  has  done  so  up  to  the  present  moment. 

It  was  due  to  one  man  chiefly  that  this  advance  of 
economics  as  an  "exact  science"  was  so  steady  and  rapid, 
and  this  man  was  John  Stuart  Mill.  While  others  had 
made  clear  the  bearing  of  legal  premises  upon  the  analysis 
of  price  and  income,  while  much  pains  had  been  taken  to 
show  the  laws  of  nature  manifesting  themselves  in  a 
"normal"  price,  or  in  the  growth  of  the  national  income, 
it  was  left  to  the  younger  Mill  to  point  out  why  and  how 
economics  could  be  a  science  comparable  with  physics. 
Precisely  as  Comte  had  proceeded  to  found  a  "social 
physics,"  calling  it  sociology,  so  J.  S.  Mill  went  ahead 
finding  for  economics  a  methodology.  Economics  has 
never  had  a  more  ardent,  a  more  capable,  a  more  illumi- 
nating exponent  of  the  philosophical  prerequisites  of 
economics  than  this  writer  of  the  inductive  "Logic"  and  of 
the  "Principles  of  Political  Economy." 

The  questions  of  the  scope  and  method  of  social  sci- 
ence, and  of  economics  in  particular,  were  settled  by  Mill 
who  was  reared  in  the  atmosphere  of  Utilitarianism.  In 
essentials  he  remained  true  to  sensationalism,  even 
though  he  disavowed  Benthamism,  and  borrowed  from 
Comte  in  rounding  out  his  logical  survey. 

Through  Mill's  Logic  the  researches  of  the  Naturalists 
were  turned  into  a  science  of  catallactics.  Exactness 
counted  more  than  comprehensiveness.  The  aim  was  to 
delimit  economic  investigations  and  to  demonstrate  be- 
yond a  doubt  that  social  laws  were  as  genuine  as  those  of 
physics  or  chemistry.  The  argument  which  J.  S.  Mill 
used  for  expounding  his  theory  of  deductive  economics 


6  A  CRITIQUE  OF  ECONOMICS 

cannot  here  be  stated,  nor  would  it  be  in  place.  But  we 
may  bear  in  mind  that  catallactics  rested  on  the  su- 
premacy of  pain-pleasure  sensations  and  memories  and 
desires  over  all  other  psychic  states ;  that  wealth  was  iden- 
.tified  with  pleasure,  and  that  the  hedonistic  theory  of 
valuation  was  as  much  a  part  of  MilFs  logic  as  of  later 
economic  doctrines  of  price  and  income.  The  statical 
viewpoint  likewise  presupposed  the  existence  of  psychic 
forces  definite  and  interacting  like  the  physical,  so  that 
an  equilibrium  for  economists  had  to  mean  a  status  quo, 
as  well  as  an  average  result.  And  again:  If  J.  S.  Mill 
defended  deduction  as  the  economic  method  his  chief  rea- 
son was  the  circumstance,  as  he  believed,  that  psychologi- 
cal and  social  happenings  obeyed  the  principle  of  a  Com- 
position of  Causes,  not  of  chemical  causation.  A  distinc- 
tion was  made  "between  the  case  in  which  the  joint  effect 
of  causes  is  the  sum  of  their  separate  effects,  and  the  case 
in  which  it  is  heterogeneous  to  them;  between  laws  which 
work  together  without  alteration,  and  laws  which,  when 
called  upon  to  work  together,  cease  and  give  place  to 
others."  ^  The  processes  of  consciousness  and  of  society 
represented  a  mechanical  rather  than  a  chemical  blending 
of  elements,  and  therefore  economists  were  not  only  per- 
mitted, but  really  compelled,  to  reason  deductively,  to 
consult  the  basic  traits  of  man  for  their  understanding  of 
the  relevant  data,  and  to  seek  a  simplicity  of  treatment 
by  abstracting  dominant  motives  from  the  whole  of  human 
nature,  in  short  by  following  the  suggestions  of  Hartley 
and  James  Mill  who  compounded  percepts  and  feelings  in 
a  quite  arithmetical  style  out  of  the  primary  sensations. 

*  Mill's  "Logic,"  Book  III,  ch.  6,  §  2.    The  argument  is  contained 
in  Book  III,  chs.  6,  10,  11,  and  Book  VI,  chs.  4,  7,  and  9. 


THE  PROBLEM  7 

John  Stuart  Mill,  to  be  sure,  was  not  oblivious  of  the 
chemical  aspects  of  physiology,^  but  this  he  thought  some- 
what apart  from  the  main  point. 

Now,  though  it  is  true  that  Historism  departed  radi- 
cally from  all  this  kind  of  thinking  on  matters  psychologi- 
cal and  economic,  and  though  it  would  be  wrong  to  under- 
estimate the  force  of  the  Historical  outlook  as  a  protest 
against  the  individualistic,  competitive  economics  of 
Smith  and  the  Utilitarians  after  him,  yet  on  two  counts 
the  Historical  movement  must  be  regarded  as  an  interlude 
merely  of  a  larger  whole.  For  in  the  first  place  the 
friends  of  Historism  were  in  quest  of  economic  laws  ex- 
actly like  their  opponents,  albeit  by  a  different  route, 
and  in  the  second  place  the  vitality  of  Utilitarianism  was 
so  great  that  nothing  up  to  the  last  few  decades  has  seri- 
ously undermined  it.  Indeed,  while  the  adherents  of  Mar- 
ginism  have  naturally  magnified  their  original  contribu- 
tions, in  reality  the  gap  between  Mill  or  neo-classicism 
on  the  one  hand,  and  Jevons  or  present-day  Marginists 
on  the  other,  is  not  unbridgeable.  In  fundamentals  Mf^r^ 
ginism  resembles  Utilitarianism,  the  chief  differences  be^ 
ing  the  displacement  in  Marginism  of  objective  terms  by 
subjective  ones,  and  the  introduction  of  a  differential,  of 
a  margin,  whose  services  were  expected  to  be  unique.    All 

that  the  Utilitarians  stood  for,  to  wit,  the  stress  on  legal 

premises  of  property,  freedom  of  contract,  freedom  of 
vocation  and  residence,  mobility  of  labor  and  capital  in 
a  legal  or  perhaps  technical  sense,  this  and  the  accept- 
ance of  sensationalism  as  a  theory  of  value  and  action, 
or  as  a  basis  for  an  economic  methodology — all  this  the 
two  groups  of  economists  shared  in  conmion.  The  de- 
•See  Book  VI,  ch.  4,  §§  2-3. 


8  A  CRITIQUE  OF  ECONOMICS 

parture  from  Utilitarian  norms  was  less  resolute  than 
imagined.  The  ties  linking  Mill  and  Menger  were 
stronger  than  the  differences  of  opinion  which,  to  some 
extent,  drove  them  apart.  What  characterized  both  was 
an  insistence  upon  precise  formulations  of  laws  in  Price 
and  Distribution,  a  belief  in  regularities  abstracted  in 
such  a  manner  from  reality  as  to  produce  a  science  of 
catallactics.  Mill  being  inconsistent  in  this  demarcation, 
because  a  greater  mind  and  a  friend  of  Comte,  while 
Menger  and  Marginists  in  general  strove  to  avoid  con- 
tradictions  regardless  of  what  became  of  the  world  of 
facts. 

Remnants  of  the  objective  view  still  exist  in  definitions 
and  treatments  of  expenses,  of  physical  supply,  and  of 
productivity,  but  on  the  whole  Marginism  was  subjective. 
Psychology,  that  is,  sensationalism  and  hedonism,  proved 
the  bedrock  of  Marginal  reasoning.  Man  in  the  center 
of  valuations,  psychic  states  as  causes,  and  last  or  least 
units  as  standards  of  measurement — such  were  the  in- 
novations that  followed  upon  Utilitarianism.  For  the 
rest,  everything  was  as  of  old.  On  the  continent  a  trans- 
cendental logic  served  as  well  as  Mill's  empirical  logic, 
since  both  stressed  deduction  of  the  formal  sort.  But 
otherwise  sensationalism  formed  tacitly  or  expressedly 
the  substratum  of  the  economic  edifice. 

Present  Critical  Attitude. — Nor  was  any  widespread 
discontent  with  this  state  of  affairs  noticeable  before  the 
dawn  of  the  twentieth  century.  Whatever  protests  were 
raised  against  this  or  that  feature  of  the  orthodox 
methodology  or  statement  of  principles  was  sporadic. 
Only  as  certain  changes  occurred  in  the  environment  and 
in    other    fields     of    scientific    inquiry    did    economists 


THE  PROBLEM  9 

scrutinize  their  teachings  from  another  angle,  thus 
arriving  by  degrees  at  opinions  which  now  have  brought 
a  crisis  in  economics.  We  live  in  a  period  of  transition 
whose  final  outcome  none  can  predict. 

These  changes  have  been  forced  upon  us  largely 
of  course  by  the  abandonment  of  sensationalistic  psy- 
chology  ^ — of  which  more  in  awhile — but  the  modinca- 
tions  of  principles  in  price,  production,  and  distribution 
are  themselves  noteworthy  and  in  part  due  entirely  to  a 
searching  of  heart  among  economists  as  such.  Economic 
literature  during  the  last  two  decades  has  excelled  in 
critical  revisions  and  in  controversial  tone,  the  Euro- 
peans leading  in  questions  of  methodology.    But  the  Amer- 

*  For  literature  in  criticism  and  rejection  of  the  hedonistic  psy- 
chology see  as  follows:  Before  1900:  Bonar,  J.,  in  Quarterly  J.  of 
Ec,  October,  1888;  Patten,  S.  N.y  in  A.  A.  A.  of  Pol.  ^  Soc.  Sc, 
1892,  pp.  28-29  by  way  of  stressing  a  complementary-utility  law; 
Stuart,  H.  W.,  in  /.  of  Pol.  Econ.,  December,  1895;  Powers,  H.  H., 
in  A.  A.  A.  of  Pol.  ^  Soc.  Sc,  vols.  12-13;  Veblen,  Th.,  in  /.  of  Pol. 
Ec,  1898,  pp.  73-97.  Since  1900:  Pigou,  A.  C,  Econ.  J.,  March, 
1903;  Davenport,  H.  J.,  "Value  and  Distribution,"  1904,  ch.  17; 
Veblen,  Th.,  in  Quart.  J.  of  Econ.  1908,  J.  of  Pol.  Econ.,  November, 
1909;  Wicksteed,  Ph.  H.,  "Common  Sense  of  Political  Economy," 
1910;  Parker  C,  in  P.  ^  P.  of  Am.  Ec.  Assoc,  March,  1918,  in  his 
"Motives  in  Economic  Life";  Mitchell,  W.  C,  in  Quarterly  J.  of  Ec, 
vol.  29,  pp.  1-47,  where  recent  literature  on  human  nature  is  re- 
viewed; Clark,  J.  M.,  in  /.  of  Pol.  Ec,  1918,  pp.  1-30,  and  136-66,  a 
historical  resume;  Fisher,  I.,  in  his  Presidential  address  before 
American  Association  for  Labor  Legislation,  1918;  Hamilton,  W.  H., 
in  Am.  Ec.  Review,  March,  1919,  pp.  316-17;  Parry,  C.  E.,  in  P.  4;  P. 
of  Amer.  Econ.  Assoc,  March,  1921,  pp.  128-29.  For  a  defense  of 
hedonism  see,  e.g.,  Whitaker,  A.  C,  in  Pol.  Sc  Quarterly,  1916,  pp. 
433-44. 

For  German  literature  against  hedonistic  theory  of  valuations 
see:  Schmoller,  G.,  in  his  Jahrb.,  1883,  pp.  975-94;  Simmel,  G.,  "Ein- 
leitung  in  die  Moralwissenschaft,"  1892-3,  vol.  I,  ch.  2;  Boehm-Ba- 
werk,  E.,  "Positive  Theorie  des  Kapitals,"  edit,  of  1909,  vol.  I,  pp. 
311-29;  Schumpeter,  J.,  "Wesen  und  Hauptinhalt  der  Theoretischen 
Sozialoekonomie,"  1908,  passim;  Weber,  M.,  in  Archiv.  f.  Sozialw. 
und  Pol,  1908,  pp.  548-54;  Cassel,  G.,  "Theoretische  Sozialoekonomik," 
edit,  of  1921.  For  a  statement  on  logical  place  of  psychological 
premises  in  economics  see,  e.g.,  Wieser,  F.,  in  Schmoller's  Jahrb.^ 
1911,  p.  924,  dissenting  from  Schumpeter. 


10  A  CRITIQUE  OF  ECONOMICS 

ican  output  was  but  little  delayed,  and  not  a  whit  less 
pronounced  in  candor  of  treatment. 

Hardly  a  tenet  of  economics,  but  it  has  been  restated 
or  impugned  as  to  its  correctness!^  Not  a  crucial  point 
in  the  arguments  on  price,®  production,  and  distribution,^ 
but  reservations  in  accepting  it  have  been  offered,  often 
with  much  feeling  or  aplomb,  as  if  with  a  premonition  of 
logical  implications.  Whether  price®  (and  factorial 
shares)  are  the  central  problem  of  economics,  whether 
competition  ^  is  really  the  milieu  of  price-fixing,  whether 

•See  for  sweeping  general  criticism:  Davenport,  H.  J.,  "Value  and 
Distribution,"  p.  ix;  Hoxie,  R.  H.,  in  /.  of  Pol.  Ec,  1906,  pp.  337- 
61;  Young,  A.  A.,  in  Qu.  J,  of  Ec,  1911,  p.  424;  Haney,  L.  H.,  "His- 
tory of  Economic  Thought,"  edit,  of  1920,  pp.  557,  566;  Anderson, 

B.  M.,  "Value  of  Money,"  p.  83;  Clark,  J.  M.,  in  P.  ^  P.  of  Am. 
Econ.  Assoc,  March,  1921,  pp.  132-43,  article  on  "Soundings  of  Non- 
Euclidian  Economics."  For  noteworthy  article  on  "E^ension  of 
YalUfi.  Theory,"  see  Friday,  D.,  in  Qu.  J.  of  Ec,  FebrutffyT  1922. 

•  Fetter,  F.  A.,  in  Am.  Econ.  Rev.,  December,  1920,  and  Hamilton, 
W.  H.,  in  /.  of  Pol.  Ec,  1918.  On  refutation  of  doctrine  of  a  single 
price  see:  Watkins,  G.  P.,  in  Qu.  J.  of  Ec,  1915-16,  p.  684;  Hoxie, 
R.  H.,  in  /.  of  Pol.  Ec,  1906,  p.  425.  For  a  much  earlier  statement 
by  a  French  sociologist  see  Tarde,  G.,  "La  Logique  Sociale,"  1896, 
p.  365. 

'  Hobson,  J.  A.,  "Economics  of  Distribution,"  1900,  pp.  16-29,  and 
the  same  author's  "Industrial  System,"  1910,  p.  136. 

"Padan,  R.  S.,  in  /.  of  Pol.  Ec,  1904-05,  p.  392;  Anderson,  B.  M., 
"The  Value  of  Money,"  p.  49;  Persons,  C.  E.,  in  Qu.  J.  of  Ec,  1912- 
13,  p.  547;  also:  Davenport,  in  Am.  Ec  Rev.,  1911,  p.  750;  Perry, 

C.  E.,  in  P.  and  P.  of  Am.  Ec  Assoc,  March,  1921,  p.  124;  Stolz- 
man,  R.,  "Grundzuege  einer  Philosophic  der  Volkswirtschaft,"  1920. 
Liefmann,  R.,  in  Archiv.  f.  Sozialw.  und  Pol.,  1912,  pp.  1-54,  and 
406-69.  On  functional  correlation  of  prices  see  Schumpeter,  J., 
"Theorie  der  Wirtschaftlichen  Entwicklung,"  1912,  pp.  61  ff,  and 
166-67. 

» Stolzman,  R.,  in  Conrad's  Jahrb.,  1918,  pp.  303,  1-27,  145-66,  273- 
304;  Anderson,  "Value  of  Money,"  pp.  570,  559  (also  same  writer's 
"Social  Value,"  1911);  Cooley,  Ch.  H.,  in  Qu.  J.  of  Ec,  1915-16,  p. 
7;  Perry,  R.  B.,  in  Qu.  J.  of  Ec,  1915-16,  p.  464;  Davenport,  "Eco- 
nomics of  Enterprise,"  pp.  92  et  seq.;  Diebl.,  K.,  in  Conrad's  Jahrb., 
vol.  51,  3d  Ser.,  pp.  399-426;  Zwiedineck,  O.,  in  Zeitschr.  f.  Ges. 
Staatsw.,  1908,  pp.  587-654,  and  for  year  1909,  pp.  78-128.  On  idea 
of  an  average  social  value  and  its  rejection  see  Anderson,  "Social 
Value,"  esp.  chs.  7,  11,  17;  Davenport,  in  /.  of  Ec,  1906,  pp.  143-69; 


THE  PROBLEM  11 

conventional  price-analysis  ^^  can  avoid  making  a  vicious 
circle  because  of,  or  irrespective  of,  a  status  quo  in  dis- 
tribution, whether  value  is  individual  or  social,^  whether 
scarcity  ^'^  rather  than  utility  is  determinative  of  price, 
what  purchasing-power  ^^  signifies  as  compared  with  per- 
sonal preferences,  how  expenses  ^^  figure  in  price  or  com- 
pare with  non-pecuniary  costs,  what  a  "factor"  ^^  in 
production  should  signify,  how  capital  ^*  is  formed  and 
to  be  used  in  its  several  meanings  as  loan-fund  or  pro- 
duction-goods or  as  sheer  right  to  income,  whether  ^** 
margins  of  utility  apply  to  all  goods  or  not,  and  what 

Wieser,  F.,  "Natural  Value"  (transl.  by  MaUoch,  1893),  Bk.  II,  ch. 
3;  and  Simmel,  G.,  "Die  Philosophie  des  Geldes,"  edit,  of  1907,  pp. 
476-77,  where  a  Marxian  viewpoint  is  taken. 

"See  Liefmann,  R.,  "Grundsaetze  der  Volkswirtschaft,"  1917, 
vol.  I. 

"  Wright,  Ph.  G.,  in  Qu.  J.  of  Ec,  1912-13,  p.  307. 

"Simpson,  K.,  in  Qu.  J.  of  Ec,  1921,  p.  287:  "Price  approximates 
bulk-line  or  marginal  cost  under  normal  conditions  of  competition," 
gross  profits  of  all  producers  in  a  given  industry  being  about  10  per 
cent  of  the  invested  capital.  See  also  Stolzman,  in  Conrad's  Jdhrh., 
1919,  p.  340;  Esslen,  J.  B.,  in  Schmoller's  Jahrh.,  1918,  pp.  1075-1123. 
On  subjective  view  of  cost  as  economic  motive  see  Liefmann,  R.,  in 
Conrad's  Jahrh.,  1913,  pp.  603-51  where  Nutzen  minus  Kosten  gives 
Beivr-ertrag ;  Kraus,  O.,  in  Jahrh.  der  Philosophie,  1914,  p.  45.  For 
a  rejection  of  individualistic  cost  concept  see  Haney,  L.  H.,  in  Am. 
Ec.  Rev.,  1912,  pp.  590-600.  For  other  discussions  of  the  same  topic 
see  Cassel,  G.,  in  Zeitschr.  f.  Ges.  Stattsw.,  1901,  pp.  68-100;  Clark, 
J.  M.,  in  Qu.  J.  of  Ec,  1913-14,  p.  770;  Bell,  Sp.,  ihidem,  for  year 
1918,  p.  523;  Knight,  F.  H.,  in  /.  of  Pol.  Ec,  1921,  p.  317. 

^'Cassel,  G.,  "Nature  and  Necessity  of  Interest,"  1903,  pp.  74  and 
85.     See  also  Davenport,  "Economics  of  Enterprise,"  ch.  22. 

"Tuttle,  Ch.  A.,  in  Qu.  J.  of  Ec,  1904,  pp.  54-96;  Borght,  R.  v.  d., 
in  Conrad's  Jahrh.,  1903,  pp.  596-607,  on  capital  as  a  loan-fund.  See 
also  Veblen,  Th.,  in  his  "Theory  of  Business  Enterprise,"  1904,  chs. 
5-Qi  Davenport,  "Economics  of  Enterprise,"  ch.  18;  King,  W.  I.,  in 
Am.  Ec  Rev.,  December,  1920,  p.  754;  Friday,  D.,  in  P.  and  P.  of 
Am.  Econ.  Assoc,  March,  1919;  Moulton,  H.  G.,  in  /.  of  Pol.  Ec, 
1918,  pp.  484-508,  638-63,  705-31,  849-81,  and  the  same  writer's 
"Financial  Organization  of  Society,"  1921,  ch.  10. 

"Wieser,  F.,  "Ursprung  und  Hauptgesetze  des  Wirtschaftlichen 
Wertes,"  1884,  pp.  198-200;  Flux,  A.  W.,  "Economic  Principles," 
1905,  p.  23;  Watkins,  G.  P.,  "Welfare  as  an  Economic_Qaantity,"  ch. 
9;  Haney,  "History  of  EconomirThTOghtr'1920,  p.~568. 


12  A  CRITIQUE  OF  ECONOMICS 

their  role  as  price-determinants,  whether  incomes  ^®  are 
prices  or  not,  whether  one  law  ^'^  governs  all  prices  of 
goods  and  services,  what  the  number  of  sharers  in  the 
distributive  process,^^  how  productivity  ^®  as  against 
valuations  or  impatience  fixes  certain  shares — such  and 
other  questions  were  raised  anew  of  recent  years,  the 
answers  varying  so  greatly  that  it  would  be  the  height 
of  complacence,  of  lazy  indifference,  to  present  economic 
science  as  having  attained  a  secure  foundation. 

The  wave  of  criticism  has  swept  the  whole  western 
world,  not  merely  one  country  or  one  school  of  econom- 
ists.    The  crest  of  the  wave  may  have  passed,  in  the  eyes 

^•Hobson,  "Economics  of  Distribution,"  1900,  p.  76,  and  the  same 
writer's  "Industrial  System,"  1910,  p.  ix  and  274.  See  also  Daven- 
port, "Value  and  Distribution,"  p.  274;  Anderson,  "Value  of  Money," 
pp.  83,  112,  119;  Veblen,  Th.,  in  /.  of  Pol.  Ec,  1909,  pp.  620-36,  and 
for  1908,  pp.  147-95;  Carlile,  W.  W.,  "Monetary  Economics,"  1912, 
chs.  5-6;  Englaender,  O.,  in  SchmoUer's  Jahrb.,  1920,  pp.  399-450, 
709-39;  Stolzmann,  R.,  in  Conrad's  Jahrb.,  1918,  pp.  1-27,  273-303. 

"See  Simiand,  F.,  "La  Methode  Positive  en  Science  Economique," 
1912;  Tugan-Baranowsky,  "Soziale  Theorie  der  Verteilung,"  1913; 
Hobson,  "Economics  of  Distribution,"  1900,  ch.  10;  Davenport, 
"Economics  of  Enterprise,"  in  discussing  shares  versus  costs  of  pro- 
duction; Cannan,  E.,  in  Qu.  J.  of  Ec,  May,  1905.  For  a  general 
disavowal  of  distributive  analysis  up  to  date  see  Fisher,  I.,  in 
P.  and  P.  of  Am.  Ec.  Assoc,  March,  1919,  p.  11.  For  a  defense  of 
classicism  in  this  matter  see  Kleene,  G.  A.,  "Profit  and  Wages," 
1916,  ch.  9. 

"Clark,  J.  B.,  "Distribution  of  Wealth,"  1899;  Hollander,  J.  H., 
in  Qu.  J.  of  Ec,  1903,  pp.  261-79;  Schumpeter,  J.,  "Wesen  und 
Hauptinhalt,"  p.  390;  Kellenberger,  in  Zeitschr.  f.  die  Oes.  Staatsw., 
1912,  pp.  658-70. 

"Davenport,  "Value  and  Distribution,"  p.  471;  Adriance,  W.  M., 
in  Qu.  J.  of  Ec,  1914-15,  pp.  149-76;  Hobson,  in  /.  of  Pol.  Ec, 
1903-04,  pp.  449-72;  Aftalion,  A.,  in  Revue  d'Economie  Politique, 
1911,  pp.  145-84,  345-69.  See  also  Parker,  U.  S.,  in  /.  of  Pol.  Ec, 
1907,  pp.  231-37;  Davenport,  "Value  and  Distribution,"  p.  364;  Kel- 
lenberger, E.,  in  Zeitschr.  f.  Oes.  Staatsw.,  1912,  pp.  658-70.  For 
controversy  on  determinants  of  interest-rates  see,  among  others, 
Davenport,  "Economics  of  Enterprise,"  p.  380;  Knight,  F.  H.,  in 
Qu.  J.  of  Ec,  1915-16,  pp.  298,  310;  Brown,  H.  G.,  in  Qu.  J.  of  Ec, 
1912-13,  p.  650;  Veblen,  "Instinct  of  Workmanship,"  1914,  p.  47,  note. 
See  also  McGoun,  A.  F.,  in  Qu.  J.  of  Ec,  1917,  pp.  547-70. 


THE  PROBLEM  13 

of  some,  but  indications  are  not  altogether  to_that  effect. 
What  is  more,  there  are  outward  signs  of  revolt,  of  dissen- 
sion or  despair  that  must  attract  all  those  engrossed  in 
economic  speculation.  For  one  thing  recent  literature 
everywhere,  though  voluminous  and  suggestive  in  par- 
ticulars, has  carried  on  no  consistent  development  of  the 
main  body  of  doctrines.  For  another  thing,  the  study  of 
business  life,  of  cycles  ^^  of  production  and  profit,  has 
gained  greatly  at  the  expense  of  erstwhile  static  surveys, 
a  tendency  that  may  be  welcomed,  no  doubt,  but  none  the 
less  provides  food  for  thought  if  one  is  familiar  with  past 
preachings  and  the  possibilities  of  the  future.  In  the 
third  place,  colleges  in  America  have  of  late  favorpd  ft^„^ 
emphasis  on  description  rather  than  on  a  teaching  of 
laws,  so  much  so  in  places,  that  one  wonders  whether  the 
science  of  economics  is  held  worthy  of  serious  cultivation 
or  not.  The  demands  of  business  have  crowded  out  of 
the  class-room  the  urge  of  a  quiet,  contemplative,  non- 
utilitarian  diagnosis  of  events,  and  what  is  widely  pre- 
ferred is  a  near-by,  practical  acquaintance  with  the  com- 
petitive norms  ruling  our  producers.  And,  finally,  there 
is  reappearing  among  us  a  political  economy  whose  pri- 


"The  literature  on  business  cycles,  especially  from  a  statistical 
standpoint,  has  grown  greatly  in  the  United  States,  as  elsewhere. 
Among  American  books  on  the  subject  may  be  mentioned  these: 
Jones,  E.  D.,  "Economic  Crises,"  1900;  Burton,  Th.  E.,  "Crises  and 
Depressions,"  1902;  Hull,  G.  H.,  "Industrial  Depressions,"  1911; 
Moore,  H.  L.,  "Economic  Cycles,  Their  Law  and  Causes,"  1914; 
Mitchell,  W.  C.,  "Business  Cycles,"  1913;  Bilgram,  H.,  and  Levy, 
L.  E.,  "The  Cause  of  Business  Depressions,"  1914.  Noteworthy  are 
also  the  investigations  of  special  committees  maintained  by  large 
industrial  plants  and  banks  for  purposes  of  business  forecasts  and 
such  organized,  strictly  scientific,  efforts  as  those  of  the  Harvard 
University  Committee  on  Economic  Research  in  Cambridge,  Mass., 
and  of  the  National  Bureau  of  Economic  Research  Incorporated  in 
New  York  City. 


14  A  CRITIQUE  OF  ECONOMICS 

mary  aim  is  national  development  on  partly  coUectivistic 
lines,  it  being  sometimes  openly  conceded  that  price  and 
income  laws  are  too  hypothetical  or  unpractical  or  vague 
or  variable  to  deserve  attention  as  much  as  descriptive 
accounts  and  precepts  for  political  application. 

Now,  this  world-wide  ferment  directed  against  orthodox 
economic  principles  is  bound  to  engage  our  solicitude. 
One  is  prone  to  ask :  What  is  wrong  with  traditional  doc- 
trine regardless  of  its  premises  in  psychology,  logic,  or 
environment?  To  what  extent  has  the  analysis  of  price 
and  shares,  which  has  so  preoccupied  us  for  nigh  a  hun- 
dred years,  failed  in  accomplishing  its  declared  purposes, 
in  yielding  the  regularities  or  generalizations  that  are  the 
boast  of  all  science?  What  may  be  said  about  the  psychic 
facts  alleged  to  be  back  of  pricing,  no  matter  whether 
we  cling  to  sensationalism  or  not?  Are  the  terms  de- 
mand and  supply  quite  clear?  Were  they  used  so  as 
to  give  us  a  self-consistent  view  of  the  pricing  mechan- 
ism? How  should  our  notion  of  a  determining  factor  in 
a  causal  sense  be  shaped,  and  what  do  we  mean  by  fixing 
or  measuring  prices? 

Or,  again,  suppose  we  start  with  the  definitions  of 
catallactic  economics,  how  are  they  logically  related,  and 
what  is  involved  in  our  coloring  them  individualistically 
or  in  terms  of  a  pecuniary  norm?  What  has  the  division 
of  production  to  say  about  the  line^of  approach  suitable 
to  distributive  problems?  Are  incomes  prices  in  all  re- 
spects, and  if  so,  what  prompted  economists  to  overlay 
their  price  analysis  with  considerations  of  other  elements 
that  consumption  goods  appeared  to  be  free  from?  What 
are  the  laws  of  production,  and  how  much  have 
they  told  us?     And  as  for  the  margins  so  conspicuously 


THE  PROBLEM  16 

paraded  by  the  latest  subjectivistic  group,  what  have 
they  done  for  us  that  might  make  them  an  indispensable 
feature  in  economic  theory? 

Of  these  and  other  questions  the  critic  will  be  disposed 
to  say  something,  even  if  he  were  absorbed  simply  in  an 
estimate  of  the  principles  of  economics  in  the  narrower 
sense.  But  of  course,  his  work  will  not  end  there;  cer- 
tainly not  nowadays  where  so  many  fundamental  tenets 
have  been  assailed.  The  question  in  fact  is:  Why  these 
changes  of  opinion?  Whence  the  change  in  venue  that 
is  threatening  not  only  the  supremacy,  but  the  very  life, 
of  Utilitarian  and  Marginal  economics  ? 

General  Grounds  of  Critical  Attitude. — As  a  first 
guess,  to  be  sure,  one  may  point  to  the  new  world  of 
actualities  in  which  we  live,  and  make  it  seem  as  though 
the  changes  wrought  since  Adam  Smith  or  John  Stuart 
Mill  demand  inexorably  a  readjustment  of  theory.  It  is 
true  undoubtedly  that  these  transformations  have  af- 
fected the  views  of  the  closet  philosopher  and  of  the  pro- 
fessional economist,  thus  accounting  for  a  fraction  of 
his  complaints  or  pleas  of  reform.  The  legal  premises 
of  three  generations  ago  are  not  so  completely  realized 
to-day.  Competition  and  freedom  of  contract  have  been 
put  under  restraint.  There  are  powerful  reasons  why 
we  should  take  the  assumptions  of  the  classicists  with  a 
grain  of  salt,  even  if  mindful  of  the  rough  accuracy  of 
the  rules  of  procedure  they  laid  down.  Competition  still  \ 
obtains,  but  not  as  much  among  individuals  as  before.  I 
The  fighting  unit  has  been  enlarged,  so  to  say.  We  com- 
I)ete^asffroups  rather  than  as  single  buyers  or  sellers, 
producers  or  consumers.  Mobility  of  the  technical  sort 
has  been  circumscribed  or  even  annulled  by  conditions 


16  A  CRITIQUE  OF  ECONOMICS 

that  our  forefathers  knew  nothing  of.  Sentiment  has  in 
no  small  measure  gone  against  an  untrameled  individ- 
ualism, and  thinkers  there  are  to-day  more  than  ever  who 
deplore  it  on  the  one  hand,  or  pronounce  it  fictitious  on 
the  other.  Thus  economic  principles  have  gradually 
undergone  a  censure  akin  to  that  brought  to  bear  upon 
the  practices  of  the  egotistic  entrepreneur. 

Yet,  if  we  seek  for  the  main  key  to  the  riddle  that  con- 
fronts us  we  must  reach  out  farther  jmd  reckon  with 
facts  that  are  not  altogether  economic.  We  must  re- 
member the  changes  in  other  spheres  of  inquiry,  in  psy- 
chology, biology,  logic,  and  philosophy  in  general.  We 
must  prepare  for  a  long  journey  of  exploration  in  order 
to  orient  ourselves  finally  in  our  own  precincts  of  Prin- 
ciples of  Economics.  Economics  was  first  founded  by 
men  who  were  philosophers  even  more  than  economists, 
whose  training  fitted  them  peculiarly  for  giving  social 
happenings  a  deep,  perhaps  even  an  occult,  significance. 
Let  us  not  forget  that  Smith  and  Quesnay  and  his  ilk, 
Bentham  and  James  and  J.  S.  Mill,  and  Say  and  Sidg- 
wick  and  Jevons  were  minds  of  large  caliber,  thinkers 
whose  greatest  desire  was  a  discovery  of  laws  comparable 
to  those  of  natural  science,  though  socketed  in  certain 
presuppositions  metaphysical.  Philosophy  is  the  mother 
of  all  sciences,  and  to  this  rule  economics  is  no  exception! 

Put  differently.  Utilitarian  and  Marginal  economics 
have  their  roots  both  in  theories  of  human  nature,  and 
in  theories  of  knowledge.  If  catallactics  eventually  sup- 
planted the  theory  of  prosperity  of  the  Naturalists  the 
reason  lies  in  a  set  of  axioms  and  speculations  that  only 
during  the  last  few  decades  have  been,  in  large  part, 
definitely    repudiated.      Statics    and    the  -"mathematical 


THE  PROBLEM  17 

method,"  price-mechanism  and  laws  of  income,  valuation 
and  productivity — all  of  these  hinge  on  ideas  framed  not 
by  the  economists  primarily,  but  by  outsiders,  by  abtruse 
thinkers  in  alien  fields.  If,  then,  changes  occurred  in 
these  realms  of  thought,  economists  were  likely  to  be 
touched  by  them  sooner  or  later.  The  developments  in 
psychology  especially  had  echoes  in  economic  literature. 
So  it  is  fitting  that  we  give  them  some  consideration, 
even  though  they  cannot  solve  our  problem  entirely. 
What  is  certain  only  is  that  psychology,  which  furnished 
all-important  premises  to  economics,  has  made  marked 
progress  since  the  classics  were  penned,  thus  forcing 
eventually  a  new  confession  of  faith  from  economists  now 
living. 

In  outline  the  progress  of  psychology  was  something 
like  this. 

Developments  in  Psychology. — Broadly  peaking  mod- 
ern psychology  was  at  the  beginning  a  part  of  either  the 
rationalistic  or  the  empirical  systems  of  philosophy. 
With  Descartes  Rationalism,  not  only  as  a  theory  of 
knowledge,  but  also  as  an  inquiry  into  psychic  processes 
in  the  narrower  sense,  became  frankly  dualistic,  positing 
"faculties"  and  innate  ideas  as  a  key  to  the  understand- 
ing of  human  nature.  Reason  was  exalted  and  mind 
sharply  set  off  against  substance  or  extension.  Men  like 
Tetens  and  Wolff  in  the  eighteenth  century  popularized 
the  notion  of  distinct  departments  of  consciousness,  the 
former  giving  currency  to  the  threefold  division  of  psy- 
chology into  Cognition,  Affection,  and  Volition. 

The  question  whether  causality  obtained  in  the  psychic 
realm  was  immediately  raised,  but  never  answered  to  the 
satisfaction  of  all.     The  Rationalists,  and  their  descend- 


18  A  CRITIQUE  OF  ECONOMICS 

ants  in  one  respect  or  another,  clung  to  the  distinction 
between  causal  connection  and  a  freedom  of  the  will, 
modes  of  consciousness  thus  being  expressedly  or  im- 
plicitly contrasted  with  physical  facts.  Personality  was 
the  active  agent  and  ultimate  reality.  The  mind  was  su- 
perior to  the  objects  it  recognized  in  the  outside  world. 
The  metaphysical  background  of  psychology,  in  other 
words,  was  never  lost  sight  of,  although  for  practical 
purposes  it  did  not  seem  so  important  whether  psycho- 
physical parallelism  or  interactionism  served  as  a  postu- 
late. This  was  one  of  the  by-products  of  the  Rational- 
istic viewpoint,  which  ever  since  has  made  enemies  of  two 
groups  of  investigators,  viz.,  those  who  accepted  causa- 
tion as  universal,  and  those  who  preferred  to  leave  a 
gap  between  psychics  and  mechanism. 

At  the  same  time,  however,  that  Greek  speculations  on 
soul  and  mind  were  continued  by  continental  philosophers, 
British  thinkers  developed  no  less  zealously  the  empirical 
standpoint;  and  it  was  through  the  ascendancy  of 'this 
latter  that  social  science  advanced  rapidly  even  before 
the  nineteenth  century. 

Empirical  psychology  was  at  first  sensationalistic. 
Sensations  as  basis  of  all  consciousness  and  knowledge 
were  expounded  vigorously,  from  Thomas  Hobbes  on. 
Associations  were  used  to  explain  thought,  reasoning,  and 
policies  of  the  individual.  The  motives  of  all  men  had 
an  intellectual  origin  due  to  the  close  dependence  of  ideas 
and  memories  upon  feeling.  In  Germany  a  similar  psy- 
chology was  fostered  by  Herbart,  somewhat  in  opposi- 
tion to  the  older  faculty  theories,  although  on  the  other 
hand  it  goes  almost  without  saying  that  Herbart  was 
not  an  out-and-out  empiricist.     He  might  speak  of  idea- 


THE  PROBLEM  19 

forces  and  follow  Bentham  in  balancing  psychic  states 
like  physical  forces,  but  none  the  less  the  Kantian  influ- 
ence was  noticeable.  Apperception  took  the  place  of  the 
simpler  composition  of  ideas  preached  by  Hartley,  Hume, 
and  J.  Mill,  while  the  transcendence  of  the  soul,  of  a  per- 
sonality safely  protected  from  all  irreverent  pryings  of 
the  scientist,  went  as  a  matter  of  course. 

Not  Herbart,  but  the  experimental  methods  introduced 
by  Weber,  Fechner,  Helmholtz,  and  their  contemporaries 
elsewhere  transformed  speculation  into  a  science.  Physio- 
logical tests  and  the  use  of  the  microscope  in  studying 
organic  matter  helped  to  put  psychology  on  a  solid 
footing.  Sensations  were  measured  Jt'elative^to_jn- 
iUieases  of  stimulus,  and  functions  emphasized  tojthe  dis- 
regard of  an  old-time  structural  presentation  of  the 
mind.  The  ground  was  thus  prepared  for  a  broader, 
unified  view  of  human  nature  which  the  evolutionary  view 
of  life  forced  irresistibly  upon  psychologists  no  less  than 
upon  biologists.  Phylogeny  displaced  or  complemented 
ontogeny.  The  truth  that  all  things  are  relative  and 
most  things  destined  to  render  specific  services  took  hold^ 
of  investigators  everywhere.  The  biological  interpreta^ 
tion  indeed  threatened  to  uproot  completely  the  psycho- 
logical one. 

As  a  result  of  this  change  of  venue  reason  was  mini- 
mized and  the  irrational  side  of  man  magnified.  Some 
turned  to  feelings  and  the  emotions  as  the  substratum  of 
human  action  and  thought.  Others  learned  to  recognize 
in  the  instincts  an  instrument  for  survival  equal  in  power 
and  significance  to  the  faculty  of  reasoning,  which  here- 
tofore had  attracted  so  much  attention.  That  nerves 
formed  an  indispensable  prerequisite  to  a  learning  proc- 


20  A  CRITIQUE  OF  ECONOMICS 

ess  was  not  denied,  but  that  certain  inborn  conative  dis- 
positions guided  it  seemed  also  clear.  Whether  instincts 
were  the  distinct,  definable  units,  classifiable  as  easily  as 
was  once  believed,  is  now  a  moot  point.  The  trend  of 
recent  years  has  been  toward  a  more  reserved  pronounce- 
ment on  this  vexing  problem,  especially  since  the  physical 
basis  of  heredity  and  the  principles  dependent  upon  it 
have  been  more  fully  revealed.  But  nevertheless  the  func- 
tional, genetic  view  of  psychological  facts  has  gained 
rather  than  lost  prestige. 

What  is  more,  a  number  of  psychologists  have  reso- 
lutely turned  their  back  on  the  soul  aspects  of  human 
nature,  emphasizing  instead  of  physiology  the  internally 
or  externally  manifest  expressions  of  thought,  feeling, 
and  will.  Thus  Behaviorism  virtually  rejects  con- 
sciousness, satisfying  itself  with  physical  facts  and 
outward  forms  subject  to  observation  and  measurement. 
Closely  related  to  these  mechanistic  Behaviorists  are 
those  who  see  in  glands  and  their  secretions  (notably  the 
ductless  glands),  in  muscle,  in  blood  pressure  and  the 
autonomic  system,  the  key  to  man's  conduct  and  moods. 
Neurology  thus  has  forfeited  its  preeminence  among 
psychological  data,  while  in  the  numerous  agents  of 
metabolism  human  thought  and  action  are  held  to  become 
alone  intelligible.  One  branch  of  contemporary  psy- 
chology thus  leans  unmistakably  toward  a  materialistic 
interpretation  of  life. 

Yet  again  psychology  has  likewise  developed  in  an 
opposite  direction,  as  the  vogue  of  the  Freudian  phi- 
losophy proves  most  strikingly.  Instead  of  self-con- 
sciousness and  physiological  causation  these  investigators 
concern  themselves  with  the  unconscious  or,  as  regards  a 


THE  PROBLEM  21 

minor  group,  with  the  subconscious.  Instead  of  chapters 
on  will,  memory,  sensations,  and  concepts  we  find 
discourses  on  error,  associations,  wish,  traumatic  fixation, 
libido,  and  dual  personality.  Psychophysical  parallel- 
ism is  replaced  by  an  interactionism  that  accords  to 
psychics  as  genuine  a  causal  bearing  upon  physical  things 
as  had  always  been  assumed  between  physical  things  them- 
selves. Thus  associationism  has  again  assumed  impor- 
tance. Thus  dreams  and  wit  and  humor  and  a  large 
variety  of  neural  disturbances  have  arrested  the  atten- 
tion of  specialists.  And  thus  psychology  is  to-day 
studied  from  more  standpoints  than  ever  before,  intro- 
spection holding  its  own  in  competition  with  experimenta- 
tion. On  some  fundamentals  most  psychologists  are  in 
agreement.  But  with  regard  to  others  dissension  is  wide- 
spread and  ever  ready  for  a  hearing  before  an  interested 
lay  public. 

Meanwhile,  however,  the  applications  of  psychology 
have  not  been  wanting  nor  waiting.  On  all  sides  sugges- 
tions have  been  made  and  carried  into  fields  quite  dis- 
tinct from  psychoanalysis  in  any  sense.  Thus  for  one 
thing  research  since  the  days  of  sensationalism  has  led 
to  new  theories  of  esthetics  and  ethics,  or  what  some  like 
to  call  ethics.  It  was  natural  that  our  ideas  of  the  beau- 
tiful and  of  right  and  wrong  should  change  with  our 
understanding  of  pleasure  or  pleasantness,  of  will  and 
motive,  affection  and  emotions,  instincts  and  attention. 
Logic  also  was  deflected  from  its  old  path  and  widened 
so  as  to  include  phases  of  inference  that  formerly  ap- 
peared negligible  or  nowise  "logical."  What  knowledge 
is  and  to  what  extent  we  may  possess  it,  this  became  a 
new  query  to  be  dealt  with  according  to  modern  psycho- 


22  A  CRITIQUE  OF  ECONOMICS 

logical  values.  Educators  proposed  to  use  the  elements 
of  memorizing,  of  interest,  and  of  reasoning  for  aiding 
the  youths  of  the  country  in  our  lower  and  higher  insti- 
tutions of  learning.  Psychoanalysis  accomplished  much 
by  ignoring  parallelism  and  treating  disease  as  a  sequel 
to  psychic  disorders,  to  "lost"  memories,  or  to  inhibitions 
foisted  upon  mankind  by  a  tyrannical  social  taboo. 

The  social  sciences,  too,  benefited  by  the  march  of 
psychological  experts.  Sociologists  could  not  turn  a 
deaf  ear  to  them  because  they  were  concerned  with  the 
origins  and  the  role  of  the  mores,  with  a  dialectic  of  cul- 
tural growth,  with  revolutions  and  with  wars,  with  crime 
and  vice,  religion  and  race  traits,  and  so  on;  economists, 
while  not  as  versatile  as  their  colleagues  in  sociology  or 
history,  nevertheless  had  reason  to  watch  the  turn  of 
events,  since  their  premises  had  always  been  psychologi- 
cal in  large  part,  and  because  of  their  exposition  of  the 
problem  of  price  and  income,  of  consumption  and  pro- 
ductivity. 

Results  of  Breakdown  of  Sensationalism. — Thus,  in 
fine,  the  increasing  criticism  leveled  against  economic 
principles  since  1900  took  much  of  its  strength  from  the 
later  contributions  of  psychologists.  Since  hedonistic 
associationism  had  broken  down,  economics  abandoned  a 
corresponding  theory  of  valuation  and  motivation.  The 
exact  connection  between  traditional  economic  psychology 
and  the  Utilitarian  (classical)  or  Marginal  price-income 
theorems  was  never  made  clear.  It  remains  to-day  for 
the  critic  to  show  in  detail  why  the  value-analysis  of 
economists  is  faulty,  and  how  far  we  must  swerve  from 
beaten  paths  before  attempting  further  progress.  But 
it  is  well  understood  by  many  that  the  downfall  of  sensa- 


THE  PROBLEM  23 

tionalism  has  somehow  necessitated  a  turn-ahout  in 
economic  theory.  Indeed,  we  may  ask,  is  it  possible 
that  so  basic  a  premise  as  the  pain-pleasure  calculus,  as 
the  intellectualistic  view  of  the  affections,  can  be  aban- 
doned without  its  reacting  disastrously  upon  other  as- 
sumptions in  economics?  Is  it  not  natural  that  catallac- 
tics  and  statics  should  suffer  from  this  recantation  of 
creeds?  May  we  expect  the  monism  of  the  Naturalists 
to  hold  sway  hereafter,  in  spite  of  the  newer  psychology, 
in  the  face  of  all  dualistic  epistemologies  promoted  since 
Kant,  and  professed  by  men  in  one  guise  or  another?  Or 
to  put  a  still  different  question :  Should  economists  slough 
off  their  old  beliefs  without  anxiety,  either  because  con- 
temporary psychology  will  provide  them  with  better  data, 
or  possibly  because  no  psychology  whatever  is  needed? 
Are  no  premises  of  any  kind  needed?  Some  will  ask  this. 
And  we  know  of  those  who  have  answered  in  the  negative 
because  they  wish  economics  to  remain  a  science  on  its 
own  merits. 

Such  a  simplification  however  may  always  be  chal- 
lenged, since  the  data  of  economics  are  not  verifiable 
exactly  like  those  of  physics  or  chemistry.  There  is  a 
difference  between  social  and  natural  sciences  that  we 
cannot  afford  to  ignore.  To  appeal  to  facts  is  natural 
enough,  but  it  will  depend  upon  the  kind  of  subject- 
matter  dealt  with  whether  the  appeal  can  be  followed 
up,  or  not.  Economics  for  the  most  part  has  not  been 
a  factual  science  whose  results  could  be  tested  with  ease. 
The  conclusions  which  our  principles  of  economics  em- 
brace have  with  rare  exceptions  not  been  of  the  kind  that, 
for  instance,  chemists  treat  of.  A  difference  exists  be- 
tween those  two   classes   of  inquiry  that  gives   sanction 


24  A  CRITIQUE  OF  ECONOMICS 

to  our  driving  the  critique  of  present  economic  teachings 
back  of  legal  or  psychological  postulates. 

Looked  at  from  one  point  of  view,  of  course,  all  his- 
tory is  no  more  than  a  recurrent  confession  and  abnega- 
tion of  faiths.  We  note,  in  perusing  the  annals  of  human 
life,  regularly  ascending  and  descending  curves  of  achieve- 
ment; epochs  in  which  beliefs  are  formulated  and  zeal- 
ously defended  as  shining  truths,  and  others  in  which  the 
scoffers  have  the  best  of  the  situation,  not  so  much  be- 
cause they  are  superior  judges  or  more  effective  promul- 
gators, but  because  in  the  light  of  new  interests  and 
environmental,  physical  or  cultural,  data  they  are  able 
to  make  out  a  better  case  for  both  the  familiar  and  the 
strange.  We  do  not  have  to  accept  a  particular  variety 
of  an  economic  interpretation  of  history  in  order  to  rec- 
ognize the  intimate  relation  between  conditions  and  creed, 
or  between  either  and  conduct.  It  is  not  to  be  doubted 
that  views  change,  and  that  most  of  what  does  not  appeal 
immediately  to  our  senses  has  a  variable  content,  a  mean- 
ing differing  with  place,  period,  and  people.  There  are 
long  stretches  of  a  development  of  ideas,  and  relatively 
shorter  ones  devoted  to  refuting  what  was  developed. 
That  which  was  self-evident  at  one  time,  becomes  perhaps 
incredible  the  next  time.  What  once  elicited  the  praise 
of  the  most  competent,  is  later  stigmatized  as  fantastic 
or  wholly  misleading.  Men  for  reasons  not  now  of  im- 
portance do  love  contradictions  and  contrasts,  speak 
in  hyperboles,  and  swing  continually  from  one  extreme 
to  the  other.  Ardor  now,  and  apathy  soon  afterwards ! 
One  age  building,  while  the  next  tears  down  with  jubila- 
tion. Dogmatism  followed  by  skepticism,  and  avowals 
eternally  oscillating,  as  if  stability  were  an  impossibility ! 


THE  PROBLEM  25 

An  intellectual  see-saw,  as  a  great  philosopher  has  taken 
pains  to  tell  us ;  a  process  of  thesis,  antithesis,  and  syn- 
thesis whose  cycles  and  courses  testify  eloquently  to  the 
foiblej^and  fatuous  ambitions  of  mankind. 

All  science,  then,  is  relative  and  subject  to  periodic 
revampings.  Yet,  while  this  is  true,  it  must  be  admitted 
that  the  natural  sciences  have  been  much  more  successful 
in  establishing  a  lasting  body  of  truths  than  philosophers 
or  even  social  scientists.  No  matter  what  the  modifica- 
tions of  scientific  creed,  a  residuum  of  indisputable  facts 
has  always  remained  to  provide  inspiration  for  further 
endeavors.  For  the  most  part  the  students  of  nature 
phenomena  have  been  in  the  enviable  position  of  being 
able  to  say  to  the  doubter,  to  the  enlightened  public:  If 
you  believe  not,  find  out  for  yourself.  Here  are  data  for 
you  to  work  with;  here  are  instruments  for  a  testing; 
here  are  assured  facts  relative  to  which  your  subsequent 
generalizations  must  take  shape.  See  what  you  can  do 
with  them,  or  prove  by  way  of  addition. 

Now,  this  challenge  which  most  natural  scientists  may 
hurl  at  their  skeptical  opponents  of  honest  intentions, 
and  the  grounds  of  which  are  themselves  an  explanation 
for  the  agreement  usually  characteristic  of  experimenters 
— certainly  as  regards  fundamentals  of  fact,  this  sort 
of  challenge  is  not  popular  among  economists  because  the 
nature  of  their  subject  matter,  of  their  methods,  and  of 
their  generalizations  forbids  it,  precludes  it.  Economics 
in  particular  has  almost  from  the  outset  relied  upon 
sheer  assumptions,  or  worked  with  data  whose  service  as 
assumptions  in  economics  is  now  no  longer  cherished. 
Social  sciences  do  not  deal  with  visible,  weighable,  tan- 
gible facts.     They  cannot,  generally  speaking,  take  ref- 


26  A  CRITIQUE  OF  ECONOMICS 

uge  in  experimentation  when  doubt  arises.  They  must 
make  their  peace  with  what  postulates  are  newly  offered, 
or  build  on  different  lines  if  the  foundations  go  to  ruin. 
In  short,  the  appeal  to  verifiable  facts  and  to  the 
adequacy  of  the  deed  of  investigation  lacks  force  because 
the  facts  themselves  are  at  issue. 

Essentials  of  an  Economic  Methodology. — ^From  time 
to  time  economists  therefore,  like  other  students  of  human 
events,  have  stated  the  logic  of  their  science  in  a  more  or 
less  gratifying  manner.  A  few  of  these  essays  have  suf- 
ficed for  their  age,  but  the  most  of  what  now  ranks  as 
economic  methodology  takes  little  account  of  recent  prob- 
lems and  requirements  for  growth  in  research.  The  prin- 
cipal writers  on  the  subject  have  accepted  formal  logic 
for  their  view  of  deduction.  They  have  opposed  induc- 
tion uncompromisingly  to  deductive  inquiry.  Specific 
causation  and  the  canons  first  announced  by  Mill  in  thor- 
oughgoing fashion  have  been  given  undue  prominence,  to 
say  nothing  of  their  abuse  by  some.  An  inter-group  de- 
bate on  Historical  versus  deductive  methods  has  accen- 
tuated the  shortcomings  of  each,  but  without  hewing 
straight  along  the  line  sketched  out  by  the  logicians  them- 
selves. We  have  heard  of  the  contentions  between  the 
Historians  and  the  classics  in  England,  of  the  reason 
why  a  generalization  from  past  occurrences  must  be 
tardy  in  coming,  or  be  inconclusive.  Definitions  have 
been  fully  discussed  and  tabulated,  and  the  premises 
stated  on  which  a  static  economics  rests.  All  this  has 
been  done  more  than  once,  and  in  addition  we  have  the 
incomparable,  the  epoch-making,  the  never-to-be-over- 
rated work  of  J.  S.  Mill,  in  which  for  the  first  and  only 
time  the  logic  of  catallactics  was  expounded  at  length. 


THE  PROBLEM  27 

with  all  the  cogency  of  reasoning  and  range  of  informa- 
tion that  its  author  had  at  his  command.  But  one  may 
ask:  Is  it  not  reasonable  to  expect  further  counsel  from 
logic  since  the  publication  of  Mill's  work  in  1843? 
Should  we  be  satisfied  with  comparing  schools  of  eco- 
nomic theory,  examining  with  lingering  fondness  their 
definitions  and  use  of  abstractions?  Or  may  anything 
definite  be  said  on  the  present  question  of  what  economics 
must  be  without  sensationalism,  without  possibly  any 
psychology,  and  what  it  may  undertake  to  do  now  that 
our  notions  of  causation,  of  laws  of  nature,  of  inference 
and  of  human  nature  in  general  have  weaned  us  from  the 
Enlightenment  ? 

A  logic  of  economics  evidently  must  be  much  more 
methodology  than  economics.  It  is  not  the  latter  which 
gives  exceptional  content  to  the  former,  but  the  former 
which  dictates  to  the  economist.  If  certain  things  con- 
stitute logic  or  inference  or  scientific  method  or  law  or 
human  knowledge,  then  for  any  one  field  like  economics 
certain  other  truths  follow.  The  basis  of  methodology 
may  be  several  things,  for  we  touch  here  upon  last  ques- 
tions not  amenable  to  our  five  or  ten  senses;  but  once 
we  have  stated  its  essentials  the  corollaries  for  some  one 
field  like  economics  will  be  evident  enough.  Whether  the 
epistemologist  takes  counsel  with  psychologists,  whether 
the  logician  learns  much  or  little  from  the  actual  routine 
of  natural  sciences,  this  may  be  a  moot  point;  but  there 
can  be  no  doubt  that  economics,  especially  because  it  has 
been  so  far  a  conceptual  science  dealing  with  abstracts 
and  not  with  the  events  as  they  happen  from  a  common 
sense  viewpoint,  had  to  acknowledge  its  obligations  to 
philosophy.     What  its  basic  definitions  should  be,  what 


28  A  CRITIQUE  OF  ECONOMICS 

the  nature  of  its  methods  and  conclusions,  or  to  what 
extent  it  might  make  sure  of  its  metes  and  bounds,  these 
questions  were  inevitably  settled  by,  first  the  premises  in 
psychology,  and,  secondly,  the  accepted  views  in  logic 
and  epistemology. 

Recent  German  Economics. — The  close  affiliation  be- 
tween economics  and  a  general  methodology  might,  a 
propos  of  this  topic,  be  well  illustrated  from  what  hap- 
pened in  Germany,  the  home  of  Kant  and  a  bulky  litera- 
ture on  all  things  theoretical.  Not  that  other  countries 
failed  to  take  cognizance  of  this  underlying  problem.  Not 
at  all.  For  in  Great  Britain,  France,  and  Italy  much 
was  written  in  late  years  on  the  philosophy  of  economics, 
preferably  in  the  light  of  changes  in  psychology. 
Everywhere,  the  United  States  not  excluded,  a  subjecti- 
vistic  attitude  gained  the  upperhand.  The  pragmatic, 
phenomenalistic  tide  that  swept  over  Anglo-Saxon  lands, 
was  symptomatic  of  what  a  modern  democracy  wanted, 
of  what  must  occur  when  problems  of  knowledge  are  at- 
tacked in  psychological  laboratories.  But  when  all  is 
said  and  done  we  must  grant  the  leadership  of  German 
economic  methodology  since  1900,  as  indeed  it  remained 
uncontested  in  both  metaphysics  and  logic. 

In  Germany,  then,  the  revulsion  of  feeling  that  fol- 
lowed the  triumph  of  scientific  materialism  precipitated 
lively  debates  on  the  limits  of  all  human  knowledge,  and 
of  natural  science  in  particular.  Vitalism  and  Fichtean- 
ism,   Neo-Kantism   and  Voluntarism  ^^   were  samples   of 

"For  typical  statements  on  this  subject,  by  Voluntarists  mainly, 
see:  Muensterberg,  H.,  "Philosophie  der  Werte,"  1908  (e.g.,  pp.  20, 
141)  and  its  American  version  as  "Eternal  Values,"  p.  155;  the  same 
author's  "Psychology,"  1914,  especially  chs.  2,  21,  24;  Stein,  L., 
"Philosophische  Stroemungen  der  Gegenwart,"  1908,  p.  341;  Rickert, 


THE  PROBLEM  29 

the  movement  which  tried  to  reinstate  idealism  after 
evolutionism  had  failed  to  answer  all  queries.  It  was 
preached  once  more  that  monism,  unless  it  be  a  trans- 
cendental idealism,  cannot  satisfy  the  human  craving; 
that  between  mind  and  matter  there  is,  empirically  viewed, 
an  unremovable  chasm;  that  will  is  one  thing,  and  law 
another;  and  that  man  either  valuated  events,  in  which 
case  he  ceased  to  be  a  scientist,  or  described  them  simply 
in  an  objective  manner,  in  which  case  he  could  never  treat 
of  social  phenomena.  The  difference  between  a  knower 
and  something  known  was  again  made  clear.  The  dual 
aspect  of  all  knowledge  was  illustrated  in  a  hundred 
ways.  Arguments  were  advanced  not  only  for  separat- 
ing ethics  from  science,  and  the  purposes  of  the  phi- 
losopher from  those  of  a  scientist,  but  what  is  more, 
sciences  themselves  were  classified  according  to  whether 
they  dealt  with  psychical  and  physical  data,  or  with 
historical  or  non-historical  facts.  Ethics,  consequently, 
was  put  aside  as  something  sui  generis,  and  this  irrespec- 
tive of  whether  its  roots  were  traced  in  biology  and  prin- 
ciples of  the  learning  process,  or  in  metaphysics  pure 
and  simple.  But  in  the  second  place,  it  was  contended 
by  many  ^^   that   law   and   causation   do   not   obtain   in 

H.,  "Grenzen  der  Natur-Wissenschaftlichen  BegriflFsbildung,"  1902, 
and  his  "Kultur-  und  Natur-Wissenschaft,  edit,  of  1915.  For  a  criti- 
cism of  Rickert  see  Muensterberg,  H.,  "Philosophic  der  Werte," 
where  all  sciences  are  treated  as  value-judgments;  Becher,  E., 
"Natur-Philosophie,"  1914;  and  Schmeidler,  B.,  in  Annalen  der  Natur- 
Philosophie,  1904,  pp.  24-70.  For  other  treatments  of  science  more 
or  less  from  an  axiological  standpoint  bearing  on  a  classifi- 
cation of  sciences,  see:  Windelband,  W.,  "Einleitung  in  die  Philoso- 
phic," 1914,  Part  I,  §  12;  the  same  writer's  "Logic,"  in  "Encyclo- 
pedia of  Philosophical  Sciences,"  1913,  vol.  I,  pp.  48-9;  and  par- 
ticularly his  "Geschichte  und  Naturwissenschaft,"  1894. 

^For  instance  in  Zeitschrift  f.  Sozialw.,  1910,  five  articles  by 
Pohle,  L.,  and  in  Conrad's  Jahrb.,  1903,  article  by  Bunzel,  G.,  pp. 
433-91. 


80  A  CRITIQUE  OF  ECONOMICS 

socio-economic  events,  or  that  at  any  rate  a  vital  dif- 
ference existed  between  an  historical  and  an  economic- 
scientific  approach  to  human  affairs. 

The  distinction  between  a  study  of  individual  facts  and 
classes  of  events  was,  to  be  sure,  an  old  one.  At  bottom 
it  was  Kantian  and  could  not  be  escaped,  once  one  op- 
posed a  critique  of  pure  reason  to  a  critique  of  practical 
reason.  Furthermore,  Schopenhauer  ^^  had  called  atten- 
tion to  the  difference  between  the  work  of  the  historian 
and  that  of  science,  though  this  seems  to  have  been  for- 
gotten. But  certainly  this  cleavage-line  was  drawn  again 
with  greater  nicety  and  elaboration  of  arguments,  the 
economists,  beginning  with  Menger,  using  it  as  a  weapon 
against  the  Historical  school  or  against  the  claims  of 
the  Verein  fuer  Sozial-Politik.  Thus,  in  the  end,  a  host 
of  methodological  questions  were  resuscitated  and  by 
most  of  the  writers  answered  in  favor  of  a  causal  basis 
of  economic  laws,  statistical  methods  gaining  by  the  de- 
cision, while  the  right  or  power  of  psychologists  to  guide 
the  economist  became  doubtful.  To  a  degree  therefore 
Voluntarism  did  for  German  economists  what  the  latest 
doctrines  in  psychology  did  for  economists  in  America 
and  England:  It  pointed  a  way  for  the  abandonment  of 
eighteenth  century  sensationalism  and  forced  a  decision 
on  two  questions,  viz.  first,  whether  economics  should 
seek  to  get  along  without  any  psychology,  and  secondly 
whether  it  was  a  science  of  causal  relations  capable  of 
being  formulated  into  laws.  In  spite  of  its  metaphysical 
origins  economic  methodology  had  thus  assumed  new  defi- 
niteness,  breaking  at  certain  points  with  an  older  logic. 

*•  Schopenhauer,  A.,  "World  as  Will  and  Idea"  (transl.  by  Haldane 
and  Kemp,  1891),  vol.  3,  ch.  38. 


THE  PROBLEM  31 

The  Methodological  Question.— There  is,  however,  an- 
other way  of  stating  the  problem  as  economists  to-day 
must  face  it.  It  is  not  necessary  that  we  commit  our- 
selves at  once  on  the  difference  between  historical  and 
non-historical  sciences,  or  between  law  or  causation  on 
the  one  side,  and  willed  acts  on  the  other,  or  between 
mechanistic  and  telic  norms  of  empirical  data.  Such 
topics  may  fitly  form  a  part  of  our  discussion,  if  we  wish 
to  exhaust  our  subject:  but  a  briefer  way  would  be  to 
remember  that  much  of  the  traditional  methodology  of 
economics  rests  on  that  very  psychology  which  now 
few  deem  worthy  of  serious  consideration.  Sensational- 
ism, a  formal  logic  handed  down  from  the  Middle  Ages, 
and  a  theory  of  induction  whose  Canons  J.  S.  Mill  has 
given  widest  currency — these  are  the  backbone  of  Utili- 
tarian-Marginal methodology.  Catallactics,  as  already 
remarked,  was  derived  from  this  hedonistic  philosophy. 
Ethics  was  in  most  cases  allowed  to  be  a  metaphysical, 
and  not  a  scientific,  problem.  The  delimitation  of  sci- 
ences rested  principally  on  a  grouping  of  things  per- 
ceptually apprehended;  while  applied  economics,  so  far 
as  laissez  faire  had  any  room  for  it,  was  based  not  only 
on  the  laws  of  consciousness  and  behavior  known  to  sen- 
sationalism, but  in  part  also  on  certain  physical  facts 
which  the  economists  retained  within  their  survey,  catal- 
lactics notwithstanding.  As  to  method,  we  need  not 
repeat  that  the  deductive  method  connected  closely  with 
the  subject  matter  of  formal  logic;  that  statics  owed 
most  to  sensationalism;  and  that  statistics  at  the  time 
was  so  much  in  its  infancy  that  it  could  scarcely  be  men- 
tioned as  a  distinctly  useful,  not  to  say  essential,  device 
for  economists.     Whatever  was   most  important  in  the 


32  A  CRITIQUE  OF  ECONOMICS 

orthodox  methodology  (by  which  is  meant  here  that  of 
classical,  neoclassical,  and  marginal  economics)  took  its 
main  support  from  sensationalism  and  formal  logic.  The 
remainder,  while  of  import,  took  a  secondary  position. 

Now,  if  economics  is  to  become  more  strictly  than 
heretofore  a  factual  science,  reducing  abstractions  to  a 
minimum  and  taking  the  world  in  substance  as  it  is,  the 
key  to  an  economic  methodology  will  lie,  not  in  rules  of 
deduction  prescribed  by  the  logician,  or  in  principles  of 
association  and  of  ideation  a  la  Hartley  or  James  Mill, 
but  in  modern  psychology,  in  the  observation  of  what 
science  actually  does  to  obtain  its  generalizations,  and  in 
a  careful  analysis  of  law  and  causation  free  from  all 
historical  bias.  /  Submit  your  views  on  law  and  causa- 
tion, and  you  have  decided  other  questions  pertaining  to 
the  methodology  of  any  science.  Explain  the  nature  of 
inference,  particularly  comparing  it  with  the  measure- 
ments of  science,  and  you  have  added  further  materials 
to  the  building  of  an  economic  methodology.  The  answer 
as  to  what  is  acceptable  if  eighteenth  century  notions 
are  to  be  repudiated  is  given  by  the  examination  of  these 
matters  just  alluded  to.  Epistemology  and  logic  in- 
variably must  determine  the  character  of  a  methodologi- 
cal creed.  Whatever  aids  they  may  invoke  in  stating 
their  case  will  prove  consequential  for  the  student  of 
methods. 

If  then  it  is  borne  in  mind  that  a  law  of  nature  has  a 
subjective  aspect  as  well  as  an  objective,  and  that  laws 
are  statements  of  elements  united  in  time  or  space  as  well 
as  of  relative  quantities  of  such  elements,  the  limits  of 
scientific  knowledge  will  be  sufficiently  comprehensible. 
It  will  be  part  of  our  task  to   emphasize   the  selective 


THE  PROBLEM  33 

principle  governing  the  formulation  of  laws,  to  compare 
different  sorts  of  units  involved  in  these  laws,  to  dis- 
tinguish between  personal  and  epistemological  sub- 
jectivity, to  state  fully  the  difference  between  quantita- 
tive and  qualitative  relations,  and  thus  to  establish  a 
line  of  demarcation  between  broad  groups  of  sciences  as 
well  as  between,  possibly,  economics  and  its  allied  fields. 

What  is  the  difference,  if  any,  between  a  law  and  a 
correlation?  This  is  a  not  insignificant  question  to  be 
answered.  What  are  the  variables  that  all  sciences  deal 
with,  and  what  those  peculiar  to  organic  existence,  thanks 
to  which  especially  the  work  of  social  philosophers  is 
made  so  arduous  and,  in  a  sense,  unsatisfactory?  What 
will  be  our  preference — a  deductive-reflective  method  or\ 
a  statistical  investigation — if  we  view  the  variables  of  < 
economics  as  complex  units  incompletely  known,  to  be  I  ^ 
correlated  only  within  vague  units  of  space  and  time? 
What  exactly  is  responsible  for  the  instability  of  socio- 
economic data  and  generalizations,  and  how  are  we  to 
link  up  such  events  with  the  facts  studied  by  psychology? 
And  again,  what  follows  for  the  scope  of  economics,  for 
applied  economics,  and  for  ethics,  if  a  genuinely  realistic, 
yet  dualistic  view  is  taken  of  law  and  causation,  or  of 
human  knowledge? 

As  to  ethics,  is  an  empirical  attitude  reconcilable  with 
its  exclusion  from  economics,  or  is  there  a  real  point 
of  contact  between  the  two?  By  what  route  are  we  to 
arrive  at  moral  judgments  without  conjuring  with  trans- 
cendental concepts? 

If  it  is  meet  that  any  science  be  bounded  theoretically, 
independent  of  what  the  results  of  research  seem  to  de- 
mand or  not  to  demand,  must  it  be  via  other  sciences,  or 


34.  A  CRITIQUE  OF  ECONOMICS 

through  a  proper  understanding  of  law  and  causation? 
On  what  grounds,  for  instance,  may  we  classify  sciences 
or  set  bounds  to  any  one  as  a  basic  or  special  science? 
What  must  govern  our  delimitation  of  economics,  either 
relative  to  other  spheres  of  inquiry,  or  without  reference 
to  them  directly? 

How  far  is  it  logical  to  speak  of  an  "applied"  eco- 
nomics if  we  remember  the  nature  of  scientific  law  and 
of  the  dialectic  of  mind  and  human  progress?  Should 
government  be  treated  as  an  integral  part  of  economic 
data,  or  does  it  stand  aside  as  a  benefitee,  like  the  engi- 
neer who  exploits  the  constants  of  a  physical  environ- 
ment? Is  it  a  case  of  science  versus  art,  or  should  we  be 
more  eager  to  acknowledge  the  transiency  of  any  public 
policy  whatsoever,  emancipating  ourselves  from  a  socio- 
logical appeal? 

The  contradistinction  between  causation  and  volition 
which  modern  philosophers  have  often  made  is  not  of 
course  without  force  or  practical  value.  But  can  we 
cling  to  the  older  hope  of  detecting  the  exact  cause?  Or 
rather,  shall  we  be  sure  of  finding  even  approximate 
causes,  if  laws  are  qualitative  as  well  as  quantitative  ex- 
pressions? What  follows  if  we  recognize  the  selective 
grounds  of  a  law  of  nature,  its  hypothetical  values? 
What  does  the  modern  view  of  causation  add  to,  or  sub- 
tract from,  particularly  that  of  the  British  empiricists 
who  in  J.  S.  Mill's  Logic  ^*  perfected  Canons  of  Induc- 
tion in  a  most  positivistic  spirit?  That  cause  and  effect 
are  not  what  a  common  sense  man  would  guess  has  long 
been  admitted.  But  apart  from  that,  should  we  accord 
to  causation  anything  whatsoever  that  is  not  given  in  the 

**  Book  I,  chs.  1  and  4. 


THE  PROBLEM  35 

idea  of  a  law?  And  if  we  revise  our  idea  of  causa- 
tion in  the  light  of  prevailing  conceptions  of  scientific 
knowledge,  can  we  continue  to  use  a  theory  of  imputa- 
tion,  as  economists  have  done,  implying  the  possibility  of 
measuring  factorial  shares,  nay,  of  specifying  all  the 
determinants  of  values? 

The  skeptical  attitude  however  which,  it  may  appear 
at  first  sight,  is  thus  cultivated  with  regard  to  funda- 
mental tenets  in  methodology,  cannot  deter  us  from 
granting  to  measurements  a  central  position  in  any  scien- 
tific realm.  On  the  contrary,  it  goes  without  saying  that 
measurement  must  he  separated  from  inference  as  such, 
and  that  both  together  constitute  science  in  its  functional 
aspects.  But  how  shall  we  interpret  the  words  deduction 
and  induction  which  have  for  so  many  years  figured  in 
economic  methodology?  Is  deduction  to  be  taken  in  the 
formal  logical  sense  or  not?  Is  the  one  operative  exclu- 
sive of  the  other  or  not?  Do  we  mean  by  a  deductive 
economic  method  what  the  logician  means  by  deduction 
or  syllogistic  reasoning?  Is  proof  in  either  case  the 
same  as  verification,  and  must  statics  be  necessarily  a 
deduction   of   conclusions    from   select   formal   premises? 

The  mathematical  method,  as  everybody  knows,  has 
often  been  differentiated  not  only  from  the  inductive,  but 
also  from  the  introspective,  procedure  of  professional 
philosophers  and  of  other  inquirers. ^^     But  what  is  our 

^'The  following  notably:  Eulenburg,  F.,  Archiv.  f.  Sozialw.  u.  Pol., 
1911,  p.  767,  1905,  pp.  519-54;  for  1910,  pp.  711-78;  for  1911,  pp. 
689-780,  e.g.,  p.  747;  Haas,  A.,  in  Schmoller's  Jahrb.,  1917,  vol.  41, 
No.  2;  Weber,  M.,  ibidem,  for  1905,  pp.  1323-84,  where  the  logical 
problem  of  Historical  economics  is  reviewed;  Weber,  M.,  in  Archiv. 
f.  Sozialw.  u.  Pol,  1904,  article  on  "Ob j  ektivitaet  Sozialwissenschaft- 
licher  und  Politischer  Erkenntnis;  Kistiakowski,  Th.,  "Gesellschaft 
und  Einzelwesen,"  1899;  Vierkandt,  A.,  in  Zeitschr.  f.  Sozialw.,  1912, 


36  A  CRITIQUE  OF  ECONOMICS 

reason  for  this  distinction  which,  by  implication,  endows 
mathematics  with  peculiar  virtues  ?  What  can  this  latter 
really  do  that  the  standard  methods  of  science,  or  in- 
ference as  such,  cannot  accomplish?  Is  the  proof  of 
mathematicians  an  end  comparable  with  that  of  scien- 
tists? Or  is  there  need  of  emphasizing  the  difficulties  in 
the  way  of  making  something  true — difficulties  which  the 
syllogism  very  properly  brushes  aside?  Manifestly,  it 
must  be  in  stating  the  difference  between  formal  deduc- 
tion and  the  deductive  thinking  of  science  that  economists 
will  learn  how  to  interpret  their  own  reflections.  But 
how  should  they  then  contrast  induction  with  deduction? 
Again.  Statistics  has  been  called  both  a  science  and 
a  method.^^  Its  beginnings,  in  one  sense,  antedate  the 
founding  of  economics,  but  in  another  they  are  much 

two  articles;  Spann,  O.,  Zeitschr.  f.  Oes.  Staatsw.,  1908,  pp.  1-57. 
See  also  Schumpeter,  J.,  "Wesen  und  Hauptinhalt  der  Theoretischen 
National-Oekonomie,"  1908,  Preface,  and  pp.  28,  37,  58,  105-07,  118. 
For  psychology  as  basis  of  economics  see:  Wundt,  W.,  "Logik,"  2d 
edit.,  vol.  II,  Part  2;  Ruemelin,  G.,  "Reden  und  Aufsaetze,"  vol.  I, 
1867:  "Ueber  den  Begriff  eines  Sozialen  Gesetzes";  and  Neumann, 
F.  J.,  in  Conrad's  Jahrb.,  1898,  pp.  19-20.  For  writers  denying  the 
existence  of  real  causal  socio-economic  laws  see:  Stammler,  R., 
"Wirtschaft  und  Recht  nach  der  Materialistischen  Geschichtsauffas- 
sung,"  1896,  and  the  same  author's  "Lehre  von  dem  Richtigen  Recht," 
1902;  Janssen,  O.,  Das  Wesen  der  Gesetzeshildung,  1910,  pp.  221-23; 
Stolzmann,  R.,  "Grundzuege  einer  Philosophic  der  Volkswirtschaft," 
1920;  Biermann,  W.  E.,  in  Conrad's  Jahrh.,  1904,  pp.  592-624;  and 
notably  Gottl.  F.  von  Ottlilienfeld,  in  Arch.  f.  Sozialw.  u.  Pol.,  vol. 
23,  pp.  403-70;  vol.  24,  pp.  265-326;  and  vol.  28,  pp.  72-100.  Gottl. 
takes  a  riiiddle  ground,  but  leans  favorably  toward  Rickert's  view  of 
science  and  history. 

"  For  discussions  on  statistics  as  method  see:  Sigwart,  C,  "Logik,'* 
vol.  2;  Lexis,  W.  (who  made  valuable  contributions  to  the  statistical 
theory  of  induction),  in  Conrad's  Jahrh.,  1879  and  1886,  and  his 
"Abhandlungen  zur  Theorie  der  Bevoelkerungs  und  Moral  Statistik," 
1903.  For  men  considering  statistics  an  independent  science  see: 
Ruemelin,  G.,  "Reden  und  Aufsaetze,"  vol.  I,  1875;  Mayr,  G.,  in 
Allgemeines  Staatswissenschaftliches  Archiv.,  vol.  11,  1918-19,  pp. 
1-50;  Seutemann,  K.,  in  SchmoUer's  Jahrb.,  1913,  pp.  1-36.  See  also 
Wundt's  view  in  his  "Logik,"  2d  edit.,  vol.  II,  pp.  523-27. 


THE  PROBLEM  37 

more  recent.     So  far  the  demand  for  a  statistical  study 
of  social  data  has  not  been  urgent,  partly  because  of  the 
premises  on  which  catallactics  was  built,  and  partly  be- 
cause the  means  and  methods  of  the  statistician  had  not 
been  thoroughly  understood  in  earlier  days.     Yet  to-day 
statistics  must  be  assigned  a  definite  place  in  any  method- 
ology,  and  besides,   economists   have   already   expressed, 
themselves  clearly  on  the  question,  taking  their  cue  from 
logicians  and  mathematicians.     What  then  may  be  said 
for  or   against   the   employment   of   statistical   measure- 
ments, and  what  at  last  analysis  is  our  warrant  for  giv- 
ing them  greater  weight  than  heretofore?     Remembering i 
that  all  knowledge  is  conditioned  and  relative,  why  should  j 
we  differentiate  between  the  values  of  experimental  gen-w 
eralization    and   those    of    induction    from    relative    fre-» 
quency?     In  short,  how  may  our  beliefs   regarding  the 
relation   of  natural   to   social   sciences   be   squared  with 
the    principles     characterizing     the     chief    methods     of 
science  ? 

Plan  of  this  Book. — ^All  of  these  topics  here  broached 
by  way  of  illustrating  a  fundamental  problem  in  eco- 
nomics cannot  of  course  be  discussed  in  a  single  volume 
however  bulky,  and  much  less  in  the  sketch  now  offered. 
It  is  not  to  be  expected  that  economics  will  speedily  find 
a  convenient  point  from  which  to  start  once  more  upon 
an  upward  path  of  dogmatic  developments.  If  tempo- 
rarily it  has  been  yanked  out  of  its  familiar  tracks, — or 
to  change  the  metaphor — ^if  just  now  weighty  issues  hang 
in  the  balance,  it  is  self-evident  that  much  time  must 
elapse  before  orderly  progress  and  an  equilibrium  of 
premises  and  principles,  of  aims  and  actions,  is  restored. 
If  from  a  long-time  standpoint  periods  of  construction 


88  A  CRITIQUE  OF  ECONOMICS 

cover  generations,  destructive  criticism  also  extends  over 
many  years,  if  not  over  decades. 

But  though  no  pretense  is  made  here  to  doing  more 
than  stating  a  problem  partly  in  new  terms,  and  partly 
of  epitomizing  what  has  already  been  done  by  others, 
notably  in  the  field  of  doctrines,  the  work  to  be  done  is 
nevertheless  sufficiently  definite  to  admit  of  an  outline  in 
the  rough.  The  first  part  of  the  book  thus  deals  with  a 
review  of  principles  of  economics,  hence  is  a  doctrinal 
Critique;  while  the  second  part  turns  on  a  consideration 
of  methodological  questions. 

Or  to  state  our  plan  still  more  specifically: 

Chapter  Two  attempts  to  show  in  detail  why  sen- 
sationalism is  untenable,  and  why  the  valuation  prob- 
lem has  come  to  mean  something  new  to  economists. 

Chapters  Three  to  Five  seek  to  give  a  critical  estimate 
of  the  Utilitarian-Marginal  (i.e.,  classical  or  neo-classi- 
cal, and  marginal)  analysis  of  price,  distribution,  and 
production  respectively.  But  the  treatment  will  be  con- 
cise because  much  of  this  work  has  already  been  done,  or 
because  of  the  wish  to  keep  distinctly  in  sight  the  larger 
philosophical  questions  involved. 

Part  Two  begins  with  a  restatement  of  the  central 
problem,  and  then  takes  up  the  consideration  of  the  prin- 
ciples of  inference  from  the  psychological  standpoint, 
though  with  due  regard  also  for  the  purely  logical  side. 
What  is  aimed  at  ultimately  is  an  answer  to  the  question 
how  deduction  and  induction  are  related  as  methods  of 
science. 

Chapter  Seven  discusses  law  and  causation,  preparing 
for  a  later  statement  on  the  correct  procedure  in  de- 
limiting sciences,  on  the  value  of  imputation  both  from  a 


THE  PROBLEM  39 

logical  and  an  economic  viewpoint,  and  on  the  limits  of 
induction. 

The  methods  by  which  science  arrives  at  laws  and  de- 
cides upon  causal  connections  are  briefly  related  in  the 
next  chapter,  emphasis  being  put  more  upon  aspects  of 
measurement  than  upon  canons  of  induction,  while  on  the 
other  hand  statistics  and  reflection  as  distinct  methods 
are  set  off  against  experimentation  and  the  auxiliary 
adjuncts  of  exact  science. 

With  this  material  for  a  beacon-light  the  ninth  chapter 
proceeds  to  discuss  the  major  points  of  an  economic 
methodology.  Scope  and  methods  receive  attention 
chiefly,  but  something  is  said  also  on  the  idea  of  statics, 
on  the  interrelation  of  sciences,  and  on  ethics  as  a  nor- 
mative discipline  diff'ering  from  mere  description. 

Finally,  in  the  tenth  chapter  a  program  of  reconstruc- 
tion is  added  to  a  summary  statement  of  what  economists 
will  probably  have  to  abandon  in  order  to  be  most  suc- 
cessful. What  is  to  be  retained,  and  what  seems  suitable 
for  investigation  both  by  way  of  rejecting  catallactics 
and  by  way  of  approaching  the  problem  statistically,  is 
a  subject  mentioned  in  the  last  pages.  All  in  all,  then, 
the  doctrinal  and  methodological  questions  of  the  day  are 
treated  with  a  view  to  positive  results,  but  that  is  not  to 
intimate  that  theory  has  not  rights  of  its  own,  or  that 
a  critique  must  do  more  than  point  out  defects  and 
obstacles  ahead. 

The  real  question  is  after  all:  How  did  the  existing 
difliculties  in  economics  arise,  and  what  can  a  definite 
methodology  mean  to  men  who  are  in  search  of  laws 
rather  than  of  individual  facts  pertaining  to  a  single 
economic  system.'' 


PART  ONE 

A  CRITIQUE  OF  ECONOMIC 
PRINCIPLES 


CHAPTER  TWO 

VALUATION 

Sensationalism  as  a  Theory  of  Valuation. — There  is  no 
better  book  to  help  us  appreciate  the  exact  nature  of  the 
psychological  premises  back  of  Utilitarian  or  Marginal 
economics  than  James  Mill's  "Analysis  of  the  Phenomena 
of  the  Human  Mind."  ^  It  was  not  only  the  most  com- 
plete account  ever  given  in  the  English  language  of  sen- 
sationalism, but  it  also  exercised  a  lasting  influence  upon 
"classical"  economists  from  Malthus  up,  and  this  in  spite 
of  the  fact  that  Mill  himself  added  but  little  to  the  knowl- 
edge of  his  day.  James  Mill,  the  father  of  John  Stuart 
Mill,  was  not  an  innovator  so  much  as  a  popularizer,  a  man 
of  extensive  interests  and  remarkable  powers  of  presen- 
tation, who  took  what  he  found  and  reformulated  it  so 
as  to  sum  up  concisely  the  views  of  his  age.  Sensational- 
ism, which  had  its  inception  in  Hobbes  and  Locke,  and 
had  reached  full  development  in  Hartley  and  Hume,  was 
put  to  new  uses  by  Bentham,  and  made  eminently  plaus- 
ible and  respectable  by  Mill,  his  contemporary.  In  this 
way  J.  S.  Mill  and  many  others  became  familiar  with  the 
associationistic  hedonism  of  the  eighteenth  century.  In 
this  way  British  Utilitarian  economics  served  as  an  in- 
termediary for  passing  hedonism  on  to  Marginism.     And 

*  The  edition  here  used  is  that  of  1869,  annotated  by  J.  S.  Mill  and 
A.  Bain.  Most  important  chapters:  Vol.  I,  chs.  2,  3,  5-6,  10;  vol.  II, 
chs.  16-22,  and  24. 

43 


44  A  CRITIQUE  OF  ECONOMICS 

precisely  on  these  assumptions  elaborately  expounded 
by  Hartley  and  James  Mill  the  subjectivistic  economists 
(the  Marginists)  proceeded  to  unfold  their  doctrines  of 
value,  price,  and  income.  If  not  always  inspired  directly 
by  this  sensationalism  they  none  the  less  thought  in  its 
terms,  the  works  of  Jennings  and  Jevons  setting  a  good 
example.^'  In  England  and  America  most,  but  among 
European  continental  writers  too,  it  was  understood  that 
valuations  had  a  feeling  basis,  that  these  feelings  had 
their  roots  in  ideas,  that  pain  and  pleasure  were  meas- 
urable quantities  determining  wants,  and  that  through 
wants  in  this  sense  economic  demand  helped  to  determine 
market  prices. 

Now,  Sensationalism  divided  psychology  into  three 
main  parts,  the  first  leading  to  the  second,  and  this  to 
the  third.  Cognition,  Affection,  and  Volition  were  the 
principal  topics  for  discussion,  the  theory  of  desire 
(which  necessarily  has  importance  for  us)  being  a  deriva- 
tive of  the  doctrine  of  feeling  and  ideas. 

Sensations  were  the  primary  facts  which  accounted  for 
'  everything  else.     The  experiences  gathered  through  the 

(five  senses  became  ideas,  subject  to  certain  laws  of  asso- 
ciation and  of  memory.  "Our  ideas  spring  up,  or  exist, 
in  the  order  in  which  the  sensations  existed,  of  which  they 
are  the  copies."  ^  Not  only  is  the  order  in  which  the  more 
complex  mental  phenomena  follow  or  accompany  one  an- 
other reducible,  by  an  analysis  similar  in  kind  to  the 
Newtonian,  to  a  comparatively  small  number  of  laws  of 
succession  among  simpler  facts,  connected  as  cause  and 

^"  See  for  instance  Jevons,  W.  S.,  "Theory  of  Political  Economy," 
'      edit,    of    1879,   chs.    1-2;    and   Jennings,    R.,   "Natural   Elements   of 
Political  Economy,"  1855,  pp.  181-92. 
» Mill,  "Analysis,"  vol.  I,  p.  78. 


VALUATION  45 

effect,  but  the  phenomena  themselves  can  mostly  be 
shown,  by  an  analysis  resembling  those  of  chemistry,  to 
be  made  up  of  simpler  phenomena."  ^ 

The  old  notion  of  establishing  a  parallel  between  the 
facts  of  the  physical  world  and  those  of  the  mind  is  here 
seen  to  rise  to  the  surface  again.  It  was  one  of  the 
cherished  dreams  of  the  eighteenth  century  to  do  for 
social  events  what  the  preceding  epoch  had  done  for 
physical  events ;  and  this  faith  in  a  set  of  laws  governing 
the  mind  and  human  conduct  wasn't  shaken  until  trans- 
cendentalism gave  rise  to  a  new  theory  of  knowledge. 

The  key  to  sensationalism  as  a  theory  of  knowledge 
lay,  however,  not  in  this  monism,  but  in  the  principles  of 
association  which  Aristotle  had  first  announced,  and  to 
which  the  British  thinkers  reverted  in  a  heroic  attempt  to 
explain  knowledge  "empirically."  The  fact  that  we  con- 
nect events  in  time  and  space,  that  sequence  and  con- 
tiguity are  common  relations,  and  that  differences  or  re- 
semblances impress  us  from  the  beginning  of  life, — this 
fact  was  made  the  basis  for  a  doctrine  that  by  chains  of 
reasoning  we  copy  faithfully  the  relations  outside. 
Through  association  impressions  were  welded  into  ideas 
or  concepts.  Through  association  individual  ideas  were 
built  into  concatenations  that  underlay  argument  and  ex- 
position, narration  and  description.  In  short,  the  laws  of 
association  were  held  to  give  regularity  to  human  thought, 
just  as  the  universality  of  certain  sense  impressions  pro- 
vided a  common  bond  among  all  people.  Hence,  what 
could  follow  but  uniformity  of  beliefs  and  a  transfer  of 
experiences  through  memory  from  one  object  to  another.? 
The  workings  of  the  human  mind  seemed  explicable,  once 
■Preface,  p.  viii,  written  by  editors. 


46  A  CRITIQUE  OF  ECONOMICS 

^  the  supreme  principle  of  ^association  was  applied  to  both 
ideas  and  to  feelings.  In  the  words  of  Mill:  "Not  only 
do  simple  ideas,  by  strong  association,  run  together  and 
form  complex  ideas,  but  a  complex  idea,  when  the  sim- 
ple ideas  which  compose  it  have  become  so  consolidated 
that  it  always  appears  as  one,  is  capable  of  entering  into 
combinations  with  other  ideas,  both  simple  and  complex." 
Thus  "brick  is  one  complex  idea,  mortar  is  another  .  .  . ; 
these  ideas,  with  ideas  of  position  and  quantity,  compose 
my  idea  of  a  wall."  ^ 

Physical  data  somehow  were  transformed  into  psychi- 
cal ones,  and  marvelously  intricate  events  of  conscious- 
ness appeared  to  have  a  tangible  basis  in  senses  respond- 
ing to  outside  stimuli.^  Feelings  could  therefore  not  be 
anything  but  sensation  "sensed"  in  a  certain  way.  The 
primary  stuff  was  the  sensation  itself;  the  state  of  feel- 
ing a  compound  of  ideas  and  bodily  conditions,  and  in- 
variably either  pleasant  or  painful  to  experience.  "Sen- 
sations and  ideas  are  both  feelings";  and  "having  a 
sensation  and  having  a  feeling  are  not  two  things."  ^ 
Through  re-arousal  from  within  sensations  originally  re- 
ceived from  without  were  brought  back  to  life,  so  to  say ; 
Hence,  whatever  intensity  the  idea  boasted  at  the  first 

.  was  transmitted  in  the  re-arousal  to  the  accompanying 
feeling.  All  sensations  were  resurrected  in  full  strength 
through  the  agency  of  thought.  An  intellectualistic 
theory  of  feelings  was  thus  developed  by  the  British  psy- 
chologists.    Feelings,  according  to  Th.  Brown  and  Mill, 

*  Vol.  I,  p.  115. 

°  Compare,  this  with  Russell's  (B.)  statement:  "All  psychic  phe- 
nomena are  built  up  out  of  sensations  and  images  alone,"  in  his 
"Analysis  of  Mind,"  1921,  pp.  279  and  297. 

"  MiU,  "Analysis,"  vol.  I,  pp.  224-25. 


J( 


VALUATION  47 

followed  the  laws  of  association  exactly  as  ideas  did. 
Feelings  had  only  quantitative,  not  qualitative  aspects. 
The  main  point  was  the  rebirth  of  feeling  (through  mem- 
ory) in  its  first  vigor,  and  the  reduction  of  all  feelings  to 
two  psychic  magnitudes,  viz.,  pain  and  pleasure.  "To 
have  an  idea  and  the  feeling  of  that  idea,"  we  are  told, 
"are  not  two  things ;  the  feeling  and  the  consciousness  are 
but  two  names  for  the  same  thing."  ^  An  idea  is  a  feeling 
that  "exists  after  the  object  of  sense  has  ceased  to  be 
present."  ^  Again :  "It  is  easy  to  prove  that  the  idea 
which  forms  part  of  memory  is  called  up  in  the  same  way, 
and  no  other.  .  .  .  The  idea  or  the  sensation  which 
preceded  the  memory  is  one  of  those  which  are  calculated, 
according  to  laws  of  association,  to  call  up  the  idea  in- 
volved in  that  case  of  memory";  and  it  is  "by  the  pre- 
ceding idea  or  sensation  that  the  idea  of  memory  was  in 
reality  brought  into  the  mind."  ^  And  again  from  Th. 
Brown,  the  author  of  "Lectures  on  the  Philosophy  of  the 
Human  Mind" :  "The  past  feelings  of  the  mind  are,  as  it 
were,  objects  present  to  the  mind  itself,  and  acquire  thus 
truly  a  sort  of  relative  existence  which  enables  us  to 
class  the  phenomena  of  our  own  spiritual  being  as  we  class 
the  phenomena  of  the  world  without."  ^^  Memories  of 
feelings,  then,  are  real,  and  what  we  felt  at  the  moment 
the  external  stimulus  acted  upon  us  we  rehearse  men- 
tally, or  rather  feel  once  more  upon  recollection.  But 
recollection  itself  operates  through  associations,  so  that 
feelings    are    associated   with    things    not    because    these 

'  Ibidem. 
^Ibidem,  p.  52. 
» Ibidem,  p.  321. 

*"  Edition   of    1854,   published   by   Masters,   Smith  &   Co.,   vol.   I, 
Lect.  9. 


48  A  CRITIQUE  OF  ECONOMICS 

themselves  originally  aroused  them,  but  because  these 
things  are  connected  retrospectively  with  other  facts  that 
gave  rise  to  those  feelings. 

From  all  this  it  follows  that  desire  is  largely  a  function 
of  associations.  But  of  course  it  was  also  understood, 
for  other  reasons,  that  we  desire  chiefly  or  solely  what 
gives  us  pleasure,  abhorring  what  is  painful.  Hedonists 
from  the  start  had  no  hesitancy  in  accepting  this  axiom, 
since  it  seemed  reasonable  that  pleasurable  experiences 
were  life  preserving — ^the  exceptions  being  insignificant — 
while  painful  events  injured  the  Self.     On  this  supposi- 

Ition,  therefore,  pleasure  and  pain  became  synonyms  for 
desire  and  aversion,  or  for  life  preserving  and  life  men- 
acing facts,  or  for  useful  and  injurious  things,  or  in  fine 
for  good  and  evil.  Utilitarianism  had  its  root  in  this 
rather  naive  view  of  ethics,  although  it  gradually  quali- 
fied its  defense  of  self-interest,  J.  S.  Mill,  as  is  well 
known,  made  it  his  duty  to  bring  out  clearly  the  social 
aspects  of  utility.  In  effect  hedonism  was  really  dis- 
carded and  something  else  substituted,  notwithstanding 
the  retention  of  the  older  word. 

People,  then,  desired  things  in  proportion  to  their  in- 
tensity of  pleasantness,  and  shunned  them  according  to 
their  painfulness.  Memories  brought  back  the  full  quota 
of  pain  or  pleasure.  Wants  were  the  proof  of  value  in  the 
sense  of  pleasurable  events  being  "good"  or  at  least 
"valuable."  Hence,  to  want  anything  was  to  demon- 
strate its  value.  And  since  most  sources  of  pleasure  con- 
sisted of  economic  goods.  Nature  being  chary  of  her 
gifts,  wealth  turned  out  to  be  a  prime  fountain  of  pleas- 
ures and  wants.  Abstinence,  conversely,  was  painful ;  for 
not  to  consume  was  to  miss  the  pleasant  sensations  ex- 


VALUATION  49 

cited  by  inner  or  outer  use  of  commodities.  Just  as  labor 
figured  as  a  source  of  physical  discomforts,  so  postpone- 
ment of  consumption  seemed  necessarily  to  beget  painful 
feelings.  Wants  always  were  for  the  sake  of  sensations, 
and  these  would  fail  in  the  absence  of  consumption.  Eco- 
nomics consequently  had  fundamental  truths  to  work 
with. 

To  quote  once  more  from  Mill :  "My  state  of  conscious- 
ness under  the  sensation  (as  such)  I  call  a  pleasure;  my 
state  of  consciousness  under  the  idea,  i.e.,  the  idea  itself, 
I  call  a  desire."  ^^  Pleasure  therefore  is  the  counterpart 
of  desire,  or  vice  versa.  "The  term  *idea  of  a  pleasure'  ex- 
presses precisely  the  same  thing  as  the  term  'desire.'  "  ^^ 
"The  idea  of  every  pleasure  associated  with  that  of  an 
action  of  ours  as  the  cause  is  a  motive."  ^^  People  are 
actuated  in  that  manner.  Through  ideas  as  bearers  of 
pleasant  reminiscences  actions  are  initiated  that  express 
the  desire  for  things,  if  action  be  needed  to  satisfy  that 
longing.  "The  action  of  muscles  follows,  as  an  effect  its 
cause,  first  upon  sensations,  secondly  upon  ideas."  ^^  To 
put  this  last  thought  more  clearly:  Sensationalism  was  a|/ 
theory  of  action  as  well  as  a  theory  of  thought.  It  not 
only  gave  the  reasons  why  sense  gratification  would  be  a 
key  to  judgments  of  value,  or  to  values  regardless  of 
judgments,  but  it  likewise  provided  a  basis  for  that 
broader  policy  of  Non-interference  which  began  with 
Adam  Smith  and  reached  its  culminating  point  in  the 
abolition  of  the  Corn-Laws  in  England.  It  was  under- 
stood, from  the  basic  data  of  sensationalism,  that  men 

"  Mill,  "Analysis,"  vol.  II,  p.  191. 
^Ibidem. 
^Ibidem,  p.  259. 
"  Ibidem,  p.  348. 


50  A  CRITIQUE  OF  ECONOMICS 

would  not  do  what  went  against  their  own  interests,  and 
that  they  could  not  pursue  ends  which,  in  the  long  run, 
imperiled  the  welfare  of  society.  Self-regard  was  held  to 
be  a  guarantee  of  social  conscience.  An  identity  was 
found  between  personal  and  public  interests.  If  a  man 
was  to  produce  to  the  utmost  and  thereby  prove  of  value 
to  his  fellowmen,  he  had  to  be  accorded  freedom  of  con- 
duct no  less  than  liberty  of  conscience.  Let  a  man  find 
out  when  his  toil  caused  more  pain  than  the  fruits  of  toil 
promised  pleasure,  and  he  would  correspondingly  shorten 
his  work-hours.  Leave  to  the  average  man  his  rights  of 
asserting  himself  and  plying  his  trade,  as  his  native  atti- 
tudes were  sure  to  bid  him  do,  and  there  would  follow 
bold  endeavors  and  a  degree  of  efficiency  which  would 
excel  all  the  endeavors  regulated  by  the  body  politic. 
Thus,  through  a  postulate  of  dominant  acquisitiveness 
and  maximum  incentive  in  unrestrained  contests  among 
individuals  of  unequal  capacities  and  tastes,  there  was 
reached  a  major  conclusion  on  the  relation  of  the  indi- 
vidual to  society,  and  of  self-expression  to  prosperity, 
whose  force  did  not  spend  itself  for  nearly  a  century, 
and  whose  impress  upon  many  a  treatise  on  economics  can 
plainly  be  seen.  Economics  since  1800,  indeed,  is  hardly 
intelligible  without  this  grasp  of  the  twofold  root  of 
laissez  faire  which  grew  out  of  an  eighteen  century  soil. 
Sensationalism  both  as  a  theory  of  valuation,  and  as  a 
theory  of  motivation  for  activity  exercised  an  abiding 
influence  upon  students  of  social  processes. 

Modern  View  of  Feelings. — If,  now,  we  inquire  into  the 
validity  of  this  set  of  doctrines  we  are,  of  course,  met  first 
of  all  with  the  well-known  fact  that  for  a  long  time  psy- 
chologists have  worked  along  other  lines,  rejecting  the 


VALUATION  61 

bulk  of  associational  and  hedonistic  teachings,  and  build- 
ing their  generalizations  on  facts  which,  if  not  always 
experimentally  established,  were  certainly  freed  from  the 
dangerous  a  priori  assumptions  that  earlier  thinkers 
deemed  perfectly  safe.  The  psychological  theory  of  valu- 
ation to-day  is  quite  different  from  what  has  here  been 
presented  as  sensationalism.  But  furthermore,  the  ques- 
tion of  value  and  of  valuation  has  been  given  a  larger 
setting,  so  that  by  the  end  of  last  century  there  arose  a 
theory  of  axiology  which,  as  remarked  in  the  preceding 
chapter,  brought  to  the  fore  many  subjects  of  a  philo- 
sophical and  logical  or  esthetic  nature.  In  general,  the 
valuation  process  has  been  found  to  embrace  so  much 
more  than  was  once  suspected,  and  has  been  made  to  in- 
clude so  many  phases  of  consciousness  and  reasoning,  that 
it  would  be  impossible  in  a  few  pages  to  do  justice  to  it. 
Philosophers  as  much  as  psychologists  have  occupied 
themselves  with  the  principal  topics.  Theories  of  logic 
and  of  epistemology  have  revolved  about  the  analysis  of 
valuation  or  of  value.  It  has  been  concluded,  largely 
from  this  angle,  by  one  writer  that  "value  is  irreducible 
to  such  existential  categories  as  pleasure,  satisfaction,  or 
causality."  ^^  A  dualistic  viewpoint  has  separated  value 
from  events  or  their  regularities.^^  A  considerable  liter- 
ature has  dealt  with  the  subject,  but  without  yielding 
agreement  on  more  than  a  fraction  of  the  points  brought 
up  for  discussion.     By  one  authority  of  excellent  repute 

"Brogan,  A.  P.,  in  /.  of  Philos.,  1921,  pp.  197-209.  See  also: 
Moore,  J.  S.,  in  same  journal,  1910,  pp.  282  ff.  on  definitions  of 
value;  Montague,  W.  P.,  1914,  pp.  353  fF.;  and  Perry,  R.  B.,  1914, 
pp.  141  ff. 

"See  for  instance  Simmel,  G.,  "Philosophic  des  Geldes,"  2d  edit., 
p.  4;  and  discussion  of  Voluntarism  in  Chapter  One  of  this  book. 


62  A  CRITIQUE  OF  ECONOMICS 

we  are  told  in  1915:  "It  is  probable  that  psychological 
analysis  has  said  very  nearly  all  it  can"  ^^  on  the  matter ; 
but  by  another  five  years  later:  "...  the  study  of 
values,  far  from  having  been  completed  in  the  existing 
literature,  is  yet  in  its  youth."  ^^  Thus  it  would  be  pre- 
sumptuous to  examine  more  than  a  small  portion  of  the 
opinion  now  authoritative  on  the  essentials  of  valuation. 
But  it  is  nevertheless  possible  to  treat  them  from  a  purely 
psychological  viewpoint,  stating  what  seems  most  nearly 
secure  in  the  eyes  of  psychology,  and  indicating  in  this 
manner  the  errors  of  sensationalism,  or  by  implication 
those  which  will  compel  economists  to  abandon  the  project 
of  correlating  prices  quantitatively  with  psychic  states. 
We  note  then  first  of  all  that,  even  though  we  identify 
all  states  of  feeling  with  values  or  states  of  valuation — 
an  assumption  not  demanded  by  facts, — these  feelings 
are  not  for  the  most  part  of  the  kind  that  sensationalism 
considered.  That  is  to  say,  pleasure  is  not  the  same  as 
pleasantness,  nor  does  a  special  sense  of  pleasure  exist. 
There  is  a  sensation  of  pain,  as  experiments  have  proven, 
and  for  it  nerve  endings  have  been  located.  But  this  is 
not  true  of  pleasure,  nor  even  of  pleasantness  in  another 
meaning  of  the  word.  "Pleasant  sensations,"  so  far  from 
being  one  of  the  most  important  facts  of  psychology, 
"have  no  existence" ;-'^^  such  is  the  modern  view;  and  to 

"  Urban,  W.  M.,  in  Psychological  Bulletin,  1915,  p.  218. 

"Picard,  M.,  in  Journal  of  Philosophy,  Psych,  and  Scientific 
Method,  1920,  pp.  11-20. 

"Pillsbury,  W.  B.,  "Fundamentals  of  Psychology,"  1916,  pp.  449, 
451.  On  differentiation  between  pleasure  and  pleasantness  see  also 
Moore,  H.  Th.,  "Pain  and  Pleasure,"  1917,  chs.  1-4;  Young,  P.  T.,  in 
Am.  J.  of  Psych.,  vol.  32,  pp.  52-3;  Wohlgemuth,  A.,  in  Brit.  J.  of 
Psych.,  1919;  Lipps,  Th.,  in  his  "Psychologische  Untersuchungen," 
1912,  vol.  II,  Part  I,  pp.  81-110.  Others  of  similar  opinion:  Kuelpe, 
Marshall,  Fite,  and  Miss  Calkins. 


VALUATION  53 

this  might  be  added  the  reminder  that,  if  by  pleasure 
states-of-pleasantness  are  meant,  then  the  persistent  seek- 
ing of  it  will  inevitably  defeat  its  own  end,  as  experience 
has  taught  many  a  one  to  his  chagrin. 
)  But  to  go  farther.  While  some  difference  of  opinion 
exists  ^^  as  to  the  relation  of  sensation  to  feeling,  or  of 
the  latter  to  affection,  it  is  granted  by  most  that  the  first 
two  are  by  no  means  the  same  thing.  "The  feelings,"  it  is 
widely  understood,  "cannot  be  identified  with  any  periph- 
eral nervous  mechanism  or  process,'*  ^^  which  certainly 
is  true  of  sensations.  "Affective  elements  have  no  special 
physical  stimuli,  and  in  this  respect  resemble  visceral  sen- 
sation." ^2  Or  in  the  words  of  another  authority :  "Feel- 
ing is  as  much  subjective  as  attention,  while  sensation  is 
dependent  altogether  upon  the  physical  environment.  It 
is  in  this  sense  that  feelings  are  subjective,  sensations  ob- 
jective; and  coupled  with  this  subjective  character  of 
feelings  is  the  further  fact  that  an  experience,  when  re- 
called, does  not  always  have  the  same  feeling  as  at 
first."  ^^  "Ordinarily  feelings  arise  through  excitation  by 
some  stimulus,  and  are  closely  connected  in  origin  with 
sensations.  But  we  may  have  both  feelings  and  sensa- 
tions from  the  same  stimulus  at  the  same  time,  and  can 
always  distinguish  them."  ^^  "Affections  are  always  co- 
extensive with  consciousness,  diffused  over  all  the  sensory 
contents  present  at  the  time;  and  ...  if  the  pleasant- 

='^For  identification  of  feelings  and  sensations  see,  e.g.,  Messer,  A., 
"Empfindung  und  Denken,"  1908,  pp.  10-33.  A  Review  of  contro- 
versy is  given  in  the  Psych.  Rev.  of  1908,  by  Meyer,  M.:  "Nervous 
Correlate  of  Pleasantness  and  Unpleasantness." 

"Dunlap,  K.,  "System  of  Psychology,"  1912,  p.  244. 

^  Ibidem,  p.  245.     But  see  also  p.  250. 

^  Pillsbury,  W.  B.,  "Essentials  of  Psychology,"  edit,  of  1911,  p.  260. 

"  Ibidem. 


64  A  CRITIQUE  OF  ECONOMICS 

ness  of  a  taste  is  localized  in  the  mouth  [a  point  used  by 
others  to  identify  feelings  and  sensations],  that  is  simply 
because  consciousness  itself,  under  the  experimental  con- 
ditions, has  been  narrowed  down  to  a  taste-conscious- 
ness." ^^  To  be  sure,  feelings  like  sensations  have  dura- 
tion, intensity,  and  quality,  but  only  sensation  has  the 
attribute  of  clearness  in  addition,  while  "we  cannot  at- 
tend to  an  affection."  ^^  Like  sensation,  affection  does 
probably  follow  certain  laws  of  a  quantitative  relation 
between  stimulus  and  response,  but  generally  speaking 
it  seems  certain  that  "affection  depends  less  upon  the 
several  and  separate  attributes  of  stimulus  than  upon 
their  combination."  ^^  "The  affection  of  any  given  mo- 
ment depends  upon  the  interplay  or  concurrence  of  sen- 
sory processes  that  are  combined  in  a  certain  conscious 
pattern."  ^^  Thus,  all  things  considered,  sensations  must 
be  differentiated  from  feelings.  As  a  recent  experimenter 
put  it:  "Feeling-elements  are  not  attributes  or  func- 
tions of  sensations  or  other  cognitive  processes,  but  a 
separate  class  of  conscious  processes."  ^^ 

Furthermore,  so  far  as  pleasure  or  pleasantness  alone 
is  concerned,  the  hedonistic  view  of  a  simple  sensation 
has  been  replaced  by  a  physiological  one  that,  while 
equally  appreciative  of  the  survival  function  of  pain- 
pleasure,  takes  much  more  account   of  their  emotional 

"Titchener,  E.  B.,  "Textbook  on  Psychology,"  1910,  p.  234;  also 
§§  69-70. 

'"'Ibidem,  p.  231. 

"Ibidem,  p.  259. 

'^  Ibidem,  p.  258. 

» Wohlgemuth,  A.,  in  Brit.  J.  of  Psych.,  1919,  p.  210.  See  also 
Warren,  H.  C,  "Human  Psychology,"  1920,  p.  279;  Hunter,  W.  S., 
"General  Psychology,"  1919,  pp.  204-07;  Jodl,  F.,  "Lehrbuch  der 
Psychologic,"  edit,  of  1916,  vol.  II,  p.  13. 


VALUATION  55 

and  organic-kinesthetic  accompaniments.  Feelings  of 
pleasure,  so  far  from  originating  principally  in  sensuali- 
ties, have  been  studied  as  an  expression  of  surplus  energy, 
as  a  by-product  of  acts  of  adjustment  to  difficulties  and 
surroundings  in  general,  or  as  a  solution  of  tasks  de- 
liberately or  involuntarily  shouldered.  In  other  words, 
an  ideological  background  has  been  given  to  what  once 
appeared  to  be  purely  physical  data.  "Pleasure,"  we 
are  informed  by  one  writer,  "is  primarily  the  character- 
istic emotional  tone  of  affect  which  accompanies  the  suc- 
cessful discharge  of  libido  along  a  conative  channel,  and 
the  attainment  of  the  appropriate  end."  ^^  The  whole 
body  and  being  is  involved  in  such  experiences.  *'Con- 
duction  by  units  [i.  e.,  the  neural]  in  readiness  is  satis- 
fying, while  conduction  by  units  in  unreadiness  and  readi- 
ness without  conduction,  are  annoying."  ^^  From  a 
biological  standpoint  pleasure  thus  appears  to  mean  feel- 
ings of  harmony  resulting  from  a  successful  execution 
of  plans,  from  a  sort  of  balancing  of  outgo  and  income, 
or  from  a  smooth  working  of  metabolic  processes.  Sen- 
sory and  motor  reactions  are  pictured  as  complementaries 
that  produce  pleasant  states  of  consciousness  even  when 
they  cannot  be  localized.  "When  any  original  behavior- 
series  is  started  and  operates  successfully,  its  activities 
are  satisfying,  and  the  situations  which  they  produce, 
also" ;  ^^  or  in  the  words  of  a  European  writer :  Pleasure 
is     the     "proof    of     an     unhampered    psychic     process 

^  Tansley,  A.  G.,  "The  New  Psychology  and  Its  Relation  to  Life," 
1920,  p.  67. 

""  Thorndike,  E.  L.,  "Original  Nature  of  Man,"  1913,  p.  128  (vol.  I 
of  his  "Educational  Psychology"). 

^ Ibidem,  p.  124. 


66  A  CRITIQUE  OF  ECONOMICS 

attaining  its  object  conformable  to  its  natural  inclina- 
tions." 33 

Such  affective  conditions,  it  has  been  said  by  some, 
may  be  remembered;  and  notably  a  French  group  of 
psychologists  has  treated  of  memory  and  logic  as  a  prob- 
lem in  feelings.^*  The  majority  of  students,  however, 
have  taken  the  opposite  stand,  denying  that  what  is 
remembered  is  the  feeling  itself.  "To  have  an  affective 
memory,"  we  are  reminded  by  one  authority,  "is  to  be 
able  to  reinstate  or  recall  an  affective  process  which  has 
once  been  experienced" ;  ^^  but  the  prevailing  opinion 
may  perhaps  be  stated  in  this  remark  by  an  American 
that  "if  we  identify  feeling  with  one  of  its  aspects,  pleas- 
antness— unpleasantness,  and  then  ask  whether  an  hedonic 
tone  may  be  recalled,  there  is  indeed  none  but  a  negative 
answer  to  that  question."  ^^  Nor  do  the  leading  prin- 
ciples of  association  provide  a  theory  of  valuation  through 
rearoused  experiences  of  pleasure,  for  researches  so  far 
indicate  that  "there  is  no  constant  relation  between  the 


^Nadejde,  D.,  "Biologische  Theorie  der  Lust  und  Unlust,"  1908, 
p.  72.  Similarly  Marshall,  H.  R.,  "Pain,  Pleasure,  and  Esthetics," 
1894,  p.  347;  MacFarlane,  J.  M.,  "Causes  and  Course  of  Organic 
Evolution,"  p.  616;  Moore,  H.  Th.,  "Pleasure  and  Pain,"  1917,  p. 
104,  and  chs.  1-4;  Lipps,  Th.,  "Vom  Fuehlen,  WoUen  und  Denken," 
1907,  p.  243.  That  organic-kinesthetic  expressions  necessarily  ac- 
company feeling  is  denied  by  Young,  P.  T.,  in  Am.  J.  of  Psych., 
vol.  32,  No.  1,  pp.  52-3. 

«Ribot,  Th.,  "Essai  d'Imagination  Creatice,"  1900;  also  his  "Psy- 
chology of  the  Emotions"  (English  transl.),  1897,  Part  I,  chs.  11-12; 
Stump f,  C,  "Ton-Psychologie,"  1883,  vol.  I,  pp.  1-133;  Witasek,  St., 
"Grundlinien  der  Psychologic,"  1908,  pp.  55-63,  showing  Freudian 
applications;  Storring,  G.,  "Psychologic  des  Menschlichen  Gefiihls- 
lebens,"  1916,  pp.  90-1. 

»  Hunter,  W.  S.,  "General  Psychology,"  1919,  p.  212. 

"»« Urban,  W.  M.,  "Valuation,"  1908,  p.  114;  120-30.  See  also 
Psych.  Rev.,  1901,  pp.  262-78  and  360-70. 


VALUATION  57 

feeling-element  of  a  sense-experience  and  the  feeling-ele- 
ment of  an  associated  idea."  ^^  What  sensationalism 
therefore  had  to  say  on  the  force  of  association  in  actu- 
ating men,  and  adapting  endeavor  to  transferred  aver- 
sions or  preferences,  can  really  carry  no  weight  to- 
day. 

More  than  this,  the  measurement  of  both  sensations  and 
feelings  is  something  quite  beyond  our  abilities,  a  fact 
which  must  prove  of  the  utmost  importance,  of  course,  in 
any  estimate  of  sensationalistic  value  theories. 

Not  even  the  developments  of  psycho-physics,  which  by 
some  have  been  supposed  to  make  out  a  good  case  for  sen- 
sationalism, are  in  reality  favorable  to  it.  For  though  it 
is  true  that  relative  intensities  of  sensations  have  been 
measured,  and  constant  ratios  of  increments  in  stimuli  to 
perceivable  differences  in  response  exist,  these  dis- 
coveries cannot  avail  a  theory  of  valuation  in  the  economic 
sense.  Nor  do  they  apply,  of  course,  to  feelings  as  dis- 
tinct from  sensations. 

To  begin  with,  the  Weber-Fechner  law  does  not  meas- 
ure the  absolute  magnitude  of  sensations  so  much  as  their 
relative  intensities.  The  founders  of  the  law,  because  of 
the  nature  of  their  task,  had  to  select  some  one  degree 
of  sensation  as  a  standard  for  all  others,  and  for  their 
purpose  made  the  least  just  noticeable  intensity  a  zero 
point  in  their  scale,  calling  it  the  limen.  Interest  there- 
after turned  on  proportions  of  stimuli  and  response,  and 
on  the  relation  between  additions  to  stimulus  and  just 
noticeable  increases  of  response.  It  was  found,  for  ex- 
ample, that  "a  stimulus  must  be  increased  by  a  certain 
constant  ratio  in  order  that  the  sensation  might  be  just 
"  Wohlgemuth,  A.,  in  Bnt.  J.  of  Psych.,  1919,  p.  238. 


68  A  CRITIQUE  OF  ECONOMICS 

noticeably  more  intense  each  time."  ^^  In  the  second 
place,  however — ^ignoring  the  limited  field  within  which 
the  law  rules,  and  certain  irregularities  in  the  law 
of  relative  intensities  ^^ — ^we  have  to  face  the  important 
fact  that  almost  from  the  outset  differences  of  opinion 
arose  as  to  the  nature  of  the  Weber-Fechner  law. 

To  the  authors  themselves  it  was  a  psycho-physical 
law  which  in  part  was  to  do  for  psychology  what  the 
laws  of  mechanics  did  for  physics.  Yet  this  is  not  the 
interpretation  commonly  accepted  to-day,  nor  do  the 
later  views  support  in  any  way  the  contentions  of  sensa- 
tionalism. For  if  we  follow  the  physiological  argument 
(which,  incidentally,  seems  to  have  the  better  of  it)  the 
measurement  of  sensations  becomes  a  certainty.  But  then 
modern  theories  of  valuation  and  our  personal  experi- 
ences of  valuation  are  not  affected,  since  value  is  not  a 
matter  of  sensation.  To  grant  then  that  "the  facts  avail- 
able indicate  that  the  law  [of  Weber]  is  due  to  the  in- 
creasing resistance  offered  in  the  nervous  system  to  the 
transmission  of  the  more  intense  nerve  impulses,  and  that 
the  explanation  is  physiological  rather  than  psychologi- 
cal or  purely  psychological"  ^^  is  not  to  throw  light  on 
economic  values.  On  the  other  hand,  if  we  stand  by 
Wundt  and  others,  convinced  that  "Weber's  Law  cannot 
be  deduced  either  from  the  physiological  peculiarities  of 
the  nervous  substance,  or  from  a  functional  relationship 

»» Hunter,  W.  S.,  "General  Psychology,"  p.  265.  But  see  also 
Dunlap,  K.,  "System  of  Psychology,"  1913,  pp.  111-12.  For  Fech- 
ner's  own  statement  see  his  "Elemente  der  Psycho-Physik,"  1860,  3d 
edit.,  ch.  9  of  vol.  I.  See  also  Titchener,  E.  B.,  "Textbook  of  Psy- 
chology,"  §§  66-67. 

*  Fechner,  Th.,  "Revision  der  Hauptprobleme  der  Psycho-Physik," 
1882;  Warren,  H.  C,  "Human  Psychology,"  p.  219. 

*»Pillsbury,  W.  B.,  "Fundamental  of  Psychology,"  1916,  p.  215; 
Mueller,  G.  E.,  "Grundlegung  der  Psycho-Physik,"  1878. 


VALUATION  69 

between  the  physical  and  the  psychical ;  for  it  is  founded 
in  the  psychical  processes  which  are  at  work  in  the  com- 
parison of  sensations.  It  is  in  this  sense  not  a  law  of 
sensations,  but  a  law  of  apperception"  *^ — if  we  allow 
this,  we  deny  the  measurability  of  sensations,  thus  leav- 
ing one  of  the  main  assertions  of  the  hedonistic  school 
unproven.  In  either  case  economists  must  turn  to  new 
constructions  on  the  psychological  side. 

In  short,  the  affective  aspects  of  valuation  do  not  pro- 
vide nearly  so  simple  a  solution  of  the  valuation  problem 
as  had  once  been  thought.  Pain  is  not  an  opposite  of 
pleasure,  and  the  real  opposites  of  pleasantness  and  un- 
pleasantness are  not  the  simple  units  that  the  eighteenth 
century  spoke  of.  We  cannot  treat  them  as  integers  that 
submit  to  addition  and  subtraction.^^  There  is  evidence, 
even,  that  the  two  are  not  mutually  exclusive,  but  may 
coexist  as  factors  of  different,  incomparable  qualities.'*^ 
And  as  for  feelings,  as  distinguished  from  sensations,  we 
have  none  of  the  data  which  Weber  and  Fechner  suc- 
ceeded in  building  into  a  physiological  law.  What  ex- 
periments have  been  conducted,  have  aimed  at  indirect 
measurement  by  correlating  affective  states  with  physio- 
logical changes.  But  the  correlations  have  not  so  far 
been  very  satisfactory.**  We  are  told,  regarding  these 
experiments,  that  "the  feelings  show  marked  bodily  ac- 
companiments, but  these  cannot  be  said  to  correspond 

«Klemm,  O.,  "History  of  Psychology"  (transl.  by  Wilm,  E.  C, 
&  Pintner,  R.,  1914),  p.  263. 

*^Jodl,  F.,  "Lehrbuch  der  Psychologic,"  4th  edit.,  vol.  II,  pp.  8-9; 
Lipps,  Th.,  "Leitfaden  der  Psychologic,"  1906,  Part  Seven. 

'^Ibidem.  Also:  Wohlgemuth,  A.,  in  Brit.  J.  of  Psych.,  1919,  p. 
239;  Ebbinghaus,  Sully,  and  McDougall,  W.,  in  his  "Introduction  to 
Social  Psychology,"  p.  156. 

**Jodl,  F.,  "Lehrbuch  der  Psychologic,"  1916,  vol.  II,  pp.  27-8. 


60  A  CRITIQUE  OF  ECONOMICS 

accurately  to  the  differences  between  pleasantness  and 
unpleasantness,  although  the  degree  of  our  feeling  car- 
ries with  it  an  approximately  corresponding  amount  or 
intensity  in  the  accompanying  physical  expression."  *^ 
Cognitive  Aspects  of  Value. — So  far  as  the  principal 
modern  notions  on  sensation  and  feeling  are  concerned, 
therefore,  it  would  matter  little  for  the  economist  whether 
he  leaned  toward  a  feeling  or  an  intellectual  view  of 
values.  It  is  indeed  almost  self-evident  that  values  of 
many  kinds  exist  and  .that,  according  to  our  definition  of 
the  term,  either  affective  or  cognitive  phases  may  be 
stressed.  The  history  of  theories  of  valuation  shows  this 
instructively.  There  have  been  those — ^particularly  at 
the  beginning — who  have  sought  the  key  to  it  in  feelings 
or  volitional  attitudes  arising  from  feelings,  just  as  the 
sensationalists  reduced  all  appetites  to  memories  of  sen- 
sation.^'^ But  later  on  the  analysis  of  value  has  turned 
chiefly  on  the  complexity  of  the  problem,  on  the  necessity 
of  subdividing  the  value  class,  of  acknowledging  the  dif- 
ference between  valuation  in  its  functional  aspects,  and  on 
valuation  as  a  formal  judgment.*^    Yet  for  the  economist 

«  Pillsbury,  W.  B.,  "Fundamentals,"  p.  460. 

*^Meinong,    A.,    in    "Psychologisch-Ethische    Untersuchungen    zur 
Wert-Theorie,"   1894,  but  this  view  was  modified  a  little  later   (see 
below).     Also:  Jodl,  Kreibig,  Simmel,  and  Haering.     Writers  stress- 
ing the  volitional  side  are:  Eisler,  Muensterberg,  Frischeisen-Koehler, 
Wundt,  Lipps,  and  Brentano,  but  especially  also:  Ehrenfels,  Chr.  v., 
"Von  der  Wert-Definition  zum  Motivationsgesetze,"  1896  (pp.  103-22), 
being  vol.   II   of  his   "System  der  Wert-Theorie,"   1897.     Partly  in 
agreement  with  him:  Meinong,  A.,  in  Archiv  f.  Systematische  Philoso- 
j      phie,  1895,  pp.  327-46,  and  in  his  "Annahmen,"  1902.    See  also  Perry, 
''       R.  B.,  in  Quarterly  J.  of  Ec,  1916,  p.  449.     The  best  one  volume 
'^      treatise  in   English   is   probably   Urban,  W.   M.,   "Valuation,"   1908, 
dealing  with  all  aspects  of  the  problem.     Others:  Kraus,  O.,  "Zur 
Theorie  des  Wertes,"  1901,  ch.  7,  and  article  in  Jahrb.  der  Philoso- 
phie,  1914;  Picard,  M.,  in  /.  of  Phil,  Psych.,  cmd  Scientific  Method, 
1920,  pp.  16-17. 

«  E.g.,  UrbaCn,  W.  M.,  "Valuation." 


VALUATION  61 

this  choice  in  itself  is  of  no  moment.  For  if  he  does  re- 
solve values  into  affective  states,  he  is  still  confronted 
with  the  fact  that  these  latter  differ  toto  coelo  from  the 
hedonic  tone  familiar  to  sensationalists.  To  trace  all 
valuations  back  to  feelings — supposing  it  seemed  neces-  */ 
sary — would  consequently  not  mean  a  substantiation  of 
the  psychology  back  of  Utilitarian  or  Marginal  eco- 
nomics. 

There  are  however  two  points  that  need  emphasizing 
in  the  treatment  of  values  as  cognitive  processes ;  and  in- 
asmuch as  these  judgment-values  play  a  prominent  role 
especially  in  economic  life,  our  emphasis  can  hardly  be 
too  great.  Namely,  in  the  first  place,  perceptions  and 
ideas  are  never  built  directly  out  of  sensations,  as  sensa- 
tionalism believed,  and  in  the  second  place  value- judg- 
ments and  feelings  have  most  frequently  a  social  basis, 
so  that  a  strictly  individualistic  hedonism  could  not  ex- 
plain them.  Valuations  from  the  apperceptive  stand- 
point, in  short,  are  just  as  far  from  being  what  eigh- 
teenth century  writers  asserted  as  they  are  according  to 
current  views  on  the  feelings  and  emotions. 

The  nature  of  perception,  ideas,  and  concepts  is 
a  commonplace  in  modern  psychological  texts,  but  the 
special  purpose  to  which  we  put  this  knowledge  will  jus- 
tify a  few  quotations.  The  hiatus  from  physiological  to 
psychological  facts  which  they  make  clear  must  be  deemed 
fatal  to  all  sensationalism,  whether  adapted  to  epistem- 
ology  or  to  axiology.'*^ 

We  read  in  one  text:  "It  is  evident  that  the  object 
seen  depends  not  only  upon  the  sensations  that  affect  the 

■"For  philosophical  phases  see  Chapter  Two  of  this  book,  section 
on  German  Voluntarism. 


62  A  CRITIQUE  OF  ECONOMICS 

sense-organ,  but  also  upon  the  memories  that  one  pos- 
sesses, and  the  laws  of  association  and  recall."  *^  "The 
facts  of  perception — stand  in  quite  different  relations  to 
one  another  from  the  physical  facts  which  stimulate  us 
through  the  eye  and  other  organs."  ^^  The  rise  of  an 
idea,  thus,  might  be  explained  somewhat  as  follows  ac- 
cording to  the  same  writer:  "A  sensory  stimulus  sends  a 
nerve  impulse  to  the  brain.  At  some  synapse  in  its  cen- 
tral course,  part  of  the  impulse  is  distributed  from  the 
main  path  into  an  adjacent  neuron.  This  overflow  cur- 
rent, being  less  intense,  loses  its  own  mode  and  takes  on 
the  characteristic  mode  of  the  neuron  into  which  it  passes, 
this  mode  being  determined  by  the  trace  left  by  past  stim- 
ulation. The  resulting  central  process  is  not  a  sensa- 
tion, but  an  idea;  it  no  longer  retains  the  characteristic 
of  its  own  origin."  ^^  This  is  the  dominant  view  of  per- 
ception and  ideas,  even  though  on  minor  points  disagree- 
ments exist.  Thus  there  are  those  who  deny  that  ideas 
are  "centrally  excited  sensations ;"  ^^  but  even  then  it  is 
granted  that  "the  perception  of  an  object  and  the  proper 
adjustment  to  it  depend  not  so  much  on  what  is  directly 
present  in  the  focus  of  consciousness,  but  on  the  wealth 
I  of  accumulated  material  lying  outside  the  moment- 
focus."  ^^  "The  image,  representation,  or  idea  of  a 
table,"  from  this  standpoint,  "is  not  itself  a  table;  nor 
is  it  a  synthesized  sensory  compound  referring  to  the 
object,  table;  it  is  a  psychic  element  referring  to  the  sen- 

«Pillsbury,  W.  B.,  "Fundamentals,"  p.  160. 

«» Warren,  H.  C,  "Human  Psychology,"  1920,  pp.  12,  66,  88. 

^^  Ibidem,  p.  226.  See  also  Stout,  G.  F.,  "Analytical  Psychology," 
vol.  II,  p.  7;  Titchener,  E.  B.,  "Textbook  of  Psychology,"  p.  48. 

'^Sidis,  B.,  "Foundations  of  Normal  and  Abnormal  Psychology," 
1914,  p.  138. 

"  Ibidem,  p.  258. 


VALUATION  63 

sory  compound  on  its  objective  aspect."  ^*  In  any  case, 
perception  and  ideas  have  no  definite,  or  fixed,  quantita- 
tive relation  to  the  elements  in  sensation  out  of  which  they 
were,  according  to  sensationalism,  directly  constructed. 
What  psychologists  generally  emphasize  is  the  complex 
nature  of  percepts  and  images,  or  the  derivation  of  per- 
ception from  four  facts,  viz.,  a  present  sensation,  pres- 
ent relations  bound  up  with  the  existing  sensation,  an 
imaginal  content,  and  certain  emotional  adjuncts  (in 
many  cases). 

Concepts,  also  largely  for  this  reason,  are  some- 
thing very  different  from  the  mechanical  constructs 
that  associational  psychology  believed;  for  they  are 
really  "an  imaginative  content  in  which  the  relations  are 
the  central  feature,  and  the  sensory  factors  purely  inci- 
dental." ^^  In  concepts  relations  are  the  principal  theme. 
"Conception  is  the  relational  consciousness — of  a  group, 
or  of  an  object  as  member  of  a  group."  ^^  Thought  thus 
is  "consciousness  of  objects  not  actually  stimulating  the 
special  sense  organs  through  which  they  were  primarily 
perceived,"  while  images  are  "objects-thought-of."^''  Or 
to  use  the  phrase  of  another  authority:  Thought  is  dis- 
tinguishable from  other  mental  states,  in  that  its  "idea- 
tional components  are  symbolic,"  and  its  "development  is 
due  almost  wholly  to  the  social  environment."  ^^ 

This  last  statement  points  to  a  further  fact  about 
ideas  in  general,  and  more  especially  about  value- judg- 


'^  Ibidem,  p.  366. 

"Dunlap,  K.,  "System  of  Psychology,"  pp.  166-67. 
"  Calkins,  M.  W.,  "First  Book  in  Psychology,"  4th  edit.,  pp.  146-47. 
*"  Dunlap,  K.,  "Mysticism,  Freudianism,  and  Scientific  Psychology," 
1920,  p.  140. 
«» Warren,  H.  C,  "Human  Psychology,"  p.  314. 


64.  A  CRITIQUE  OF  ECONOMICS 

merits,  namely  their  social  origins  in  one  aspect.  Indi- 
vidual psychology  deals  with  one  side  of  cognition  and 
trains  of  thought  or  of  feelings,  but  sociologists  have 
the  right  to  study  inter-individual  relations,  in  the  light 
of  which  our  personal  notions  assume  a  broader  signifi- 
cance. Thus  it  goes  without  saying  that  little  of  what  we 
know  is,  strictly  speaking,  self-earned,  and  that  every- 
thing we  believe  or  do  is  influenced  by  the  thoughts  and 
actions  of  our  contemporaries.  The  majority  follows, 
and  a  small  minority  leads.  Innate  diff^erences  and  those 
which  life's  experiences  and  an  objective  physical  envir- 
onment bring  out,  or  accentuate,  lead  to  standardization 
of  creed  and  conduct.  All  human  beings  are,  by  inborn 
predisposition,  as  fond  of  subjecting  themselves  to  others, 
as  of  asserting  themselves.  Suggestibility  is  a  common 
heritage  for  men  in  all  ages.  Imitatimi  plays  its  part 
in  uniformizing  thoughts  and  purposes.  While  on  the 
one  hand  our  congenital  and  acquired  diff^erences  and 
peculiarities  prevent  a  dead  level  of  social  expression,  on 
the  other  they  also  make  possible  that  degree  of  organi- 
zation which,  if  not  the  same  as  agreement,  none  the  less 
tends  to  perpetuate  conformity.  Through  natural  or  ar- 
tificial means  of  communication,  through  cooperation  in 
many  fields,  including  the  economic,  and  through  control 
exercised  by  virtue  of  the  differentials  just  mentioned, 
norms  are  established  that  obtain  over  wide  regions,  sway- 
ing many  millions  of  people.  Personality  and  genius, 
technical  expertness  of  professions  and  "trades,"  and 
government  in  various  guises — all  this  makes  for  stand- 
ardization. As  the  spokes  of  a  wheel  point  from  a  center 
outward  toward  the  rim,  so  the  influence  of  the  elite,  that 
is   of  leaders   in  politics,   religion,   art,  science,   and   in- 


VALUATION  65 

dustry  radiates  out,  establishing  contact  with  the  mil- 
lions who  look  for  precept  and  example.  All  sorts  of 
values  are  defined  by  a  minority,  communicated  to  the 
masses,  and  pirrTo~i:he-4:e5lrt!TereaIter!  The  average  per- 
son gives  advice  of  his  own,  and  m  a  measure  contributes 
toward  the  norms  and  practices  of  his  age;  but  the 
greater  credit  must  go  to  those  who  excel  beyond  com- 
parison, and  thus  give  much  more  than  they  can  possibly 
take.  Values  owe  their  definiteness  and  permanency  to 
this  circumstance.  What  habit  is  to  the  individual,  that 
custom  is  for  society.  We  learn  from  infancy  by  listen- 
ing to  elders,  by  copying  the  deeds  of  others,  by  assimi- 
lating rather  than  by  inventing  new  means  or  ends. 
Through  social  heredity  our  slender  inborn  resources  are 
made  enormously  productive  and  profitable  to  ourselves. 
We  do  more  by  rote  than  by  reflection.  Just  as  move- 
ments of  the  body  become  automatic  through  continued 
exercise,  so  our  ideas  and  evaluations  become  stereotyped, 
a  reflex  of  thought  elsewhere  originated,  and  proof  of 
the  power  of  office,  organization,  ritual,  and  personality 
over  the  destinies  of  the  mediocre. 

Laws  of  learning  and  of  sociation  therefore  compel  us 
to  recognize  the  plural  sources  of  value,  even  though  we 
individualize  necessarily  its  emotions.  All  values,  the 
economic  not  excluded,  have  an  impersonal  aspegt?  and 
students  in  several  fields  liave  rendered  us  a  signal  service 
in  describing  these  principles.  Particularly  during  re- 
cent decades  the  sociological  phases  of  value  have  been 
clearly  presented.  Economic  values  presuppose  others  of 
a  more  fundamental  mission.  This  has  become  evident. 
Absolute  or  non-exchange  values  rule  logically  prior  to 
market  prices,  even  though  most  non-economic  norms  lend 


66  A  CRITIQUE  OF  ECONOMICS 

themselves  to  a  pecuniary  scale  of  measurement.^^  Value 
"as  an  objective  social  fact  is  the  product  of  social  inter- 
action .  .  .  ,  but  as  a  product  of  social  interaction  it  is 
the  resultant  of  modifications  of  the  subjective  feelings  of 
value  of  individuals  .  .  .'^^^  "Economic  value  is  a  func- 
tion of  interacting  and  reacting  minds."  ^^  "No  analysis 
of  a  valuation  ever  gives  us  a  complex  in  which  values 
are  not  presupposed."  ^^  "Value  is  an  expression  of  or- 
ganization definite  in  proportion  as  it  is  institutional- 
ized."^^ "The  progress  of  market  valuation,  as  a  rule, 
is  a  translation  into  pecuniary  terms  of  values  which 
have  already  become  in  some  measure  a  social  institu- 
tion .  .  ."  ^*  "Both  in  legal  and  in  economic  values  we 
have  an  elaborate  and  complex  system  of  social  psycho- 
logical character,  which  can  by  no  means  be  reduced  to 
elementary  desires  or  feelings,  even  though  ...  no  part 
of  the  system  will  be  found  outside  the  minds  of  individual 
men."  ^^ 

Value  in  its  Volitional  Aspect. — It  follows  from  this 
social  origin  of  valuations,  which  cannot  be  quantita- 
tively related  to  individual  sensations  or  even  to  per- 
cepts, that  in  their  volitional  aspects  also  they  are  some- 
thing very  different  from  what  sensationalists  had  taught. 
As  a  theory  of  motivation  also  the  hedonistic  psychology 

»See  for  instance  Veblen,  Th.,  "Economics  of  Enterprise,"  1904; 
Simmel,  G.,  "Die  Philosophic  des  Geldes,"  2d  edit.,  1907,  ch.  5,  pp. 
387-479. 

•o  Urban,  W.  M.,  "Valuation,"  p.  317. 

^  Perry,  R.  B.,  in  Quarterly  J.  of  Ec,  1915-16,  p.  475. 

^Haering,  Th.,  "Untersuchungen  zur  Psychologic  der  Wertung," 
quoted  by  Urban,  in  Psych.  Bulletin,  1915,  p.  219. 

<«  Cooley,  Ch.  H.,  in  Quarterly  J.  of  Ec,  1915,  p.  9. 

"Anderson,  B.  M.,  "Value  of  Money,"  p.  30.  See  also  his  "Social 
Value,"  1911;  and  Ehrenfels,  Ch.  v.,  "System  der  Wert-Theorie," 
vol.  I,  p.  170. 

•Reference  mislaid. 


VALUATION  67 

i^  untenable  to-day,  not  merely  because  our  prevailing 
treatments  of  ethics  are  hostile  to  it,  but  in  the  more 
serious  sense  that  our  notions  of  human  nature,  of  in- 
stincts and  the  emotions,  of  the  modifiability  of  the  in- 
stincts, and  of  the  general  law  of  progress  and  moral 
developments  have  little  in  common  with  the  earlier  phi- 
losophy. Partly  because  of  our  dissent  from  the  analysis 
of  feeling  and  cognition  current  among  the  founders  of 
economics,  and  partly  owing  to  our  more  accurate  under- 
standing of  social  processes  we  are  obliged  to  reject 
Bentham's  theory  of  motivation  which  was  derived  so 
logically  from  his  theory  of  values. 

One  of  the  divisions  into  which  a  theory  of  motivation 
naturally  falls  need  not,  however,  concern  us  here.  What 
in  a  complete  treatment  would  have  to  be  said  on  the 
nature  of  the  Ultimate  Good  and  on  the  principles  of 
sociation  thanks  to  which  one  public  policy  rather  than 
another  must  be  best,  may  here  well  be  omitted,  for  it 
is  not  the  ethical  system  of  Utilitarianism  that  matters 
in  an  appraisal  of  theories  of  value,  but  the  question 
whether  men  are  indeed  actuated  as  sensationalism  told 
us,  and  whether  values  necessarily  and  invariably  have 
an  individual  aim,  putting  the  Ego  always  in  the  center 
and  promoting  social  welfare  precisely  because  of  this 
fact.  Naturalism,  to  be  sure,  did  not  take  this  view  of 
motivation  and  morality,  nor  was  it  even  accepted  by  all 
of  the  British  Utilitarians,  to  say  nothing  of  continental 
writers.  But  generally  speaking  the  hedonistic  thgoj-y 
of  motivation,  which  pictured  society  as  a  mechanical 
aggregate  of  individuals,  did  ignore  values  that  the  in- 
stinct  6f  self-interest,  catering  directly  to  the  self,  could 
not   explain.     All  wants   being  values    (though  not   all 


68  A  CRITIQUE  OF  ECONOMICS 

values  need  be  wants),  they  were  traced  back  to  pleasant 
experiences  or  to  ideas  of  them,  sensation  being  the  ulti- 
mate fountain  of  all. 

Now,  in  the  light  of  modern  knowledge  a  line  must 
first  be  drawn  between  what  is  innate  and  what  is  ac- 
quired after  birth  in  human  motives,  for  both  manifestly 
play  a  role  in  history.  Because  of  it  man  has  a  rec- 
ord of  evolution  or  development  radically  different  from 
that  of  other  species. 

As  for  the  instincts,  opinion  is  no  longer  as  unanimous 
as  some  twenty  or  thirty  years  earlier,  particularly  since 
geneticists  have  forced  us  to  inquire  into  the  nature  of 
those  carriers  of  heredity  which  make  human  nature 
fairly  constant.  If  until  recently  instincts  were  enu- 
merated and  treated  as  perfectly  definite  facts,  nowadays 
the  attitude  of  many  is  somewhat  skeptical.  What  is 
instinctive  and  what  is  not,  has  once  more  become  a 
vexing  question.  We  read  for  instance  in  an  article  of 
very  recent  date:  "An  instinct,  since  it  is  as  much  a  unit 
character  as  any  other  product  of  Mendelian  inheritance, 
is  inconceivable  apart  from  the  fact  of  its  structure."  ^^ 
The  emotions  which,  thanks  mainly  to  British  psycholo- 
gists,^^ were  taken  as  an  index  of  the  character  of  an 
instinct,  have  come  in  for  their  share  of  criticism,  with 
the  result  that  much  work  appears  to  be  before  us  if  we 
wish  to  satisfy  new  researches  in  biology.  "The  assump- 
tion,'' we  are  told,  "of  an  original  and  unchanging  char- 
acteristic central  emotion,  which  is  the  essential  attribute 

«« Bernard,  L.  L.,  Psych.  Rev.,  1921,  p.  103,  109,  117.  Also  Tans- 
ley,  A.  G.,  "New  Psychology,"  Part  II;  Faris,  E.,  Am.  J.  of  Soc, 
1921,  pp.  184-96. 

"McDougall,  W.,  "Introduction  to  Social  Psychology";  Shand, 
A.  F.,  "Foundations  of  Character,"  1914;  Marshall,  H.  R.,  "Pain, 
Pleasure,  and  Esthetics,"  1894,  pp.  83-86. 


VALUATION  69 

of  the  instinct,  is  itself  without  foundation  in  the  data."  ^^ 
However,  in  general  instincts  may  still  be  said  to  pro- 
mote self-preservation,  to  be  inborn  and  not  acquired,  to 
be  quite  plastic  as  a  structure  or  process,  subject  to  all 
kinds  of  postnatal  experience,  to  lack  a  reasoning  ele- 
ment, to  be  accompanied  by  feelings,  and  to  center  as  a 
rule  upon  a  near-by  object.  Instincts  thus  have  no 
ideational  basis,  nor  is  a  motive  or  an  act  of  kLdib^-aS) 
valuation  a  part  of  _an  instinctive  reaction^^  So  much 
we  are  tolerably  sure  of.  Within  this  range  of  facts 
instincts  have  proven  on  the  whole  selfish,  albeit  their 
usefulness  from  a  phylogenetic  standpoint  is  not,  of 
course,  thereby  questioned. 

Not  all  wants  are,  however,  instinctive.  Conative  proc- 
esses are  one  type  of  will  or  wish  or  routine  activity  on 
the  part  of  individuals,  but  not  the  whole  of  it.  Rather, 
ideas  also  lead  to  volition,  and  in  the  opinion  of  many 
constitute  a  prime  characteristic  of  most  acts  of  will  or 
states  of  longing.  Thus,  what  needs  to  be  stressed  is 
the  reality  of  the  modification  of  instinctive  predisposi- 
tions, as  well  as  the  possibility  of  men  acting  irrationally 
not  only  when  driven  by  instinct,  but  likewise  when  trans- 
lating ideas  into  motor-reactions.*^^  Stimuli,  in  other 
words,  that  animals  do  not  encounter  or  cannot  perceive 
in   a   psychological  sense,  may   come   from   the  outside. 

•*  Bernard,  L.  L.,  Psych.  Bev.,  1921,  p.  105.  Other  writers:  Kantor, 
J.  R.,  Psych.  Rev.,  1921,  pp.  138-9;  Calkins,  M.  W.,  "First  Book  in 
Psychology,"  4th  edit.,  185-86,  where  non-economic  emotions  are 
discussed;  Link,  H.  C,  Am.  J.  of  Psychology,  Jan.  1922. 

*  Innate  and  acquired  volitions  are  contrasted  by  Meumann,  E.,  in 
his  "Intelligenz  und  Wille,"  1908,  pp.  202-8.  The  independence  of 
Instincts  of  pain-pleasure  is  emphasized  by  Drever,  Jas.,  in  his  "In- 
stinct in  Man,"  1917. 

^°  Importance  of  modified  instincts  for  social  science  is  shown  by 
Hunter,  W.  S.,  in  Psych.  Rev.,  July,  1920. 


70  A  CRITIQUE  OF  ECONOMICS 

Men  have  added  a  cultural,  non-physical,  environment  to 
that  provided  by  nature.  They  live  in  a  socio-economic 
world  even  more  than  amidst  conditions  facing  the  sav- 
age; and  because  of  this  fact  they  have  also  burdened 
— or  enriched  themselves,  according  to  view — ^with  con- 
siderations unknown  to  animals.  To  the  love  of  offspring, 
gregariousness,  and  to  weak  creative  instincts  have  been 
added  values  that  made  organization  of  the  most  intricate 
sort  possible  only  by  limiting  that  freedom  which  not 
so  very  long  ago  was  thought  to  be  the  principal  bless- 
ing of  a  state  of  nature.  Mental  growth  increasingly  has 
dwarfed  physical  strength.  Concepts  have  given  purpose 
to  perception  and  imagination,  and  in  memory-associa- 
tions provided  a  means  for  adapting  the  potentialities 
of  nature  to  non-biological  needs,  to  wants  ever  mul- 
tiplying and  continually  digressing  from  the  line  along 
which  they  originally  moved.  Thus  ideas  rather  than 
instincts  are  responsible  for  most  of  our  economic  ac- 
tivities. Until  direction  is  given  to  the  former,  the 
latter  are  not  truly  social  or  economic.  Emotions 
still  color  our  experiences  and  leave  the  most  lasting 
impressions,  but  cortex  and  association  areas  add 
their  part  to  the  result  which  we  call  motivated 
activity. 

"Desire,"  as  one  notable  book  puts  it,  "is  a  very  com- 
plex emotional  system  which  includes  actually  or  poten- 
tially the  six  prospective  emotions  of  hope,  anxiety,  dis- 
appointment, despondency,  confidence,  and  despair."  But 
"the  prospective  emotions  of  desire  are  only  aroused  by 
thoughts;  being  first  dependent  on  the  thought  of  the 
end,  and  secondly  on  some  modification  of  this  thought 
which  operates  as  the  special  stimulus  of  one  or  other 


VALUATION  71 

of  these  emotions."  "^^  "As  a  rule  the  projection  [pic- 
turing an  impending  act  as  already  completed]  comes 
first,  is  then  felt  as  a  motive,  and  then  leads  to  action."  "^^ 
In  a  sense,  then,  assumptions  (Annahmen)  form  the  back- 
ground of  many  of  our  desires  or  acts  of  volition.''^  We 
are  under  the  sway  of  ideas  not  always  pushed  into  the 
foreground  of  consciousness,  but  nevertheless  partly  de- 
terminative of  the  mode  and  direction  of  our  efforts.  Will 
consequently  involves  the  "consciousness  of  an  act  to  be 
performed,  of  the  end  or  consequences  of  an  act,  and  of 
an  accepted  purpose  or  intention.'*  ''^  It  is  with  a  set  of 
beliefs  and  concepts  that  we  start  out,  no  matter  how 
original  the  form  of  our  achievements.  Generally  speak- 
ing we  may  also  agree  that  the  object  of  our  desire  is 
not  within  our  present  reach,  and  that  obstacles  will, 
under  suitable  conditions,  intensify  our  striving.  Or  in 
the  words  of  one  writer:  "Conative  factors  attach  only 
to  imaged,  ideated  and  conceived  content.  If  an  object 
is  present  to  sense — it  may  be  pleasing  or  displeasing,  but 
cannot  be  desired  or  be  repugnant."  ^^  But  whether  this 
be  so  or  not — and  some  have  rejected  this  notion — there 
can  be  no  doubt  that  wish  and  eifort  originate  in  ideation 
as  well  as  in  instincts. 

"Shand,  A.  F.,  "Foundations  of  Character,"  pp.  463-4;  Kenagy, 
H.  G.,  in  Psych.  Rev.,  1917,  p.  380.  Desires  traced  to  feelings:  Jodl, 
F.,  "Lehrbuch  der  Psychologie,"  1916,  vol,  II,  p.  68. 

"Witasek,  St.,  "Grundlinien  der  Psychologie,"  1908,  p.  360. 

'^Ibidem,  p.  351;  Urban,  W.  M.,  "Valuation,"  pp.  38-39;  Meinong, 
A.,  "Ueber  Annahmen,"  1902;  Shand,  A.  F.,  "Foundations  of  Char- 
acter," p.  518. 

"  Breese,  B.  B.,  "Psychology,"  p.  402. 

"Dunlap,  K.,  "System  of  Psychology,"  p.  251;  Ehrenfels,  ch.  v., 
"System  der  Werttheorie,"  vol.  I.  For  obstruction  view  of  will  see 
Shand,  "Foundations,"  pp.  461  and  519;  Boodin,  J.  E.,  in  Am.  J.  of 
Soc,  1915-16,  p.  65;  Ward,  Jas.,  "Psychological  Principles,"  1920, 
p.  283;  and  Simmel,  G.,  "Philosophic  des  Geldes,"  2d  edit.,  pp.  12-13. 


72  A  CRITIQUE  OF  ECONOMICS 

From  this  follow  two  facts  of  significance  for  an  ap- 
praisal of  sensationalism,  viz.,  first,  that  socially-derived 
values  may  supersede  the  purely  individualistic,  besides 
making  judgment  habitual,  and  secondly,  that  egoistic 
standards  may  be  supplemented  by  altruistic  ones  which 
among  lower  types  of  animal  life  exist  in  only  one  form, 
viz.  the  parental  instinct.  Put  differently,  valuations 
may  not  be  rational  at  all  from  an  hedonistic  viewpoint, 
and  means  may  become  ends  to  the  effect  that  pain  is 
freely  courted  as  its  own  reward,  or  as  a  sacrifice  whose 
joys,  all  things  considered,  exceed  the  unpleasantness  ex- 
perienced. Just  as  valuations  in  general  are  standardized 
through  the  agencies  of  social  control,  so  norms  of  action 
and  desire  may  be  imposed  upon  the  individual  that  his 
original  nature  might  not  agree  with.  Habituation  on 
the  one  hand,  and  custom  or  control  on  the  other  hand, 
give  rise  to  wants  that  are  absolutely  at  variance  with 
the  end  proposed  by  an  hedonistic  calculus.  Neither 
measurements  of  safety  and  maximum  enjoyment,  nor 
the  dictates  of  self-preservation,  enter  into  a  large  num- 
ber of  our  everyday  desires.  Not  only  is  it  true  for 
psychological  reasons  that  desire  "has  no  definite  or  con- 
stant relation  to  the  amount  of  pleasure  that  may  result 
from  its  satisfaction,"  ^^  but  more  especially  to  the  soci- 
ologist must  it  seem  self-evident  that  "the  degree  of 
value  [of  anything]  varies  independently  of  hedonic  in- 
tensity." ''^  From  one  standpoint  it  may  seem  as  if 
"every  act  of  conation  or  will,  as  soon  as  it  takes  effect, 
furthers  the  state  of  happiness  as  compared  to  that  frame 
of  mind  which  would  emerge  if  the  respective  action  had 

"Ward,  Jas.,  "Psychological  Principles,"  p.  283. 
"  Urban,  p.  T4. 


VALUATION  73 

not  been  taken,"  ^^  but  the  question  here  is  the  object  of 
our  happiness,  the  way  it  affects  our  fellowmen,  and  the 
thoughts  that  urge  us  to  do  what  produces  pleasure  in 
us.  Viewed  in  this  light  the  search  for  pleasure  may 
mean  nothing  worse  than  a  love  of  other  men*s  approval, 
or  the  feeling  of  satisfaction  that  follows  a  deed  of  mercy. 
Valuations  as  wants  then  are  altruistic  even  when  ap-  *^ 
parently  hedonistic.  Value,  more  than  ever,  ceases  to 
be  a  "single  moment  of  enjoyment  for  its  own  sake,"  be- 
coming instead  "a  fact  separated  by  the  judging  indi- 
vidual from  the  contents  or  cause  of  enjoyment,  and 
something  desirable  which  presupposes  the  mastery  of 
obstacles,  if  not  of  distances  in  time  or  space."  ^^  Or  in 
the  phrase  of  an  American  psychologist :  Pain  and  pleas- 
ure "are  ideal  constructs  which  as  objects,  as  passive 
states — are — the  products  of  a  process  of  abstraction 
exercised  upon  our  'condition'  worths,  including  the  pri- 
mary 'condition'  worths,  together  with  their  complement- 
ary values  ethical  and  esthetic,  which  arise  on  that 
level."  ^^  Primeval  values  give  way  to  secondary  and 
tertiary  values  which,  as  want  or  enterprise,  resemble  in 
no  wise  the  motives  postulated  by  an  unmitigated  indi- 
vidualism.^^ 

"Ehrenfels,  Ch.,  "System  der  Werttheorie,"  pp.  32,  41,  249; 
Roback,  A.  A.,  in  Psych.  Rev.  publications,  1918,  No.  Ill,  p.  37. 

"Simmel,  G.,  "Philosophic  des  Geldes,"  pp.  12-13;  Urban,  "Foun- 
dations," p.  86;  Barrett,  E.  B.,  "Motive-Force  and  Motivation 
Tracks,"  1911,  p.  179;  Hayes,  E.  C,  "Sociology  as  Ethics,"  1921,  ch.  > 
7;  Taussig,  F.  W.,  "Inventors  and  Money-Makers,"  1915,  pp.  76-79;  ^ 
Tiburtius,  J.,  in  Conrad's  Jahrb.,  1914,  pp.  721-89;  and  Sombart,  W., 
in  his  "Quintessence  of  Capitalism,"  Book  II,  p.  171  (transl.  by 
Epstein,  G.,  1915). 

«» Urban,  "Valuation,"  p.  417. 

^  On  possible  desire  for  pain-experiences  see  Meinong,  A.,  "Ueber 
Annahmen,"  1902,  ch.  9,  §  51 ;  and  Green,  Th.  H.,  "Prolegomena  to 
Ethics,"  edit.  1906,  Book  III,  ch.  1. 


74  A  CRITIQUE  OF  ECONOMICS 

Some  Conclusions. — But  this  being  so,  can  we  expect 
wants  to  be  measurable  any  more  than  feelings  or  judg- 
ments or  ideas?     The  question  answers  itself.     It  follows 
from  all  that  psychologists  have  said  on  the  subject  of 
valuation  that  intensities  of  wish,  or  wants  such  as  the 
economist  is  interested  in,  are  not  ascertainable  by  any 
known  methods.    We  can  be  certain  that  wants  differ  in 
intensity,  each  man  comparing  his  own  with  that  of  the 
next,   and   coming   somehow   to   the   conviction   that   his 
desires  exceed,  or  fall  below,  those  of  the  next  man ;  but 
this  is  not  measuring  them  as  the  science  of  economics  or 
of  psychology  understands  the  term.     Exchange  values, 
therefore,  must  either  be  interpreted  as  something  gen- 
erically  distinct  from  subjective  valuations  of  any  kind, 
including  our  moral  and  esthetic  aspirations,  or  we  must 
arbitrarily  make  a  given  price  the  index  for  a  definite 
degree  of  want  or  pleasure,  resorting  frankly  to  a  petitio 
principii.    On  the  whole,  then,  it  seems  best.lg^divorce_the 
psychology  of  valuation  frgm  pricpj  though  encouraging  a 
qualitative    analysis.      For   practical   purposes   the   two 
are  incomparable,  so   far  as   our  present  knowledge  of 
them  is  concerned.     Value,  we  may  agree,  "is  not  deter- 
mined by  the  particular  exchange-ratio  in  which  it  hap- 
pens to  be  put,  and  is  not  changed  eo  ipso  every  time  a 
new  comparison  is  made."  ^^     Valuations  and  wants  are 
too  elusive,  too  complex,  and  too  individual,  in  spite  of 
outer  limits  set  by  prevailing  social  norms,  to  be  useful 
for  a   science  of  catallactics.     Exchange  itself,   as  has 
been  truthfully  said,  "is  a  sociological  plf^nomenon  sui 
generis,  a  singular  form  and  function  of  inter-individual 
life  that  can  never  be  deduced  logically  from  the  quali- 
«*  Anderson,  B.  M.,  "Social  Value,"  p.  24. 


VALUATION  75 

tative  and  quantitative  facts  called  utility  or  scarcity."  ^^ 
But  because  wants  are  so  mobile  and  so  far  removed 
from  mere  physiological  events,  we  are  unable  also  to 
apply  to  them  laws  of  response  or  of  fatigue.  To  reg 
ister  increments  of  satiety  in  a  physical  sense  may  be 
possible,  but  to  subject  valuation  processes  to  the  same 
tests  would  be  folly.  "Since  the  value-feelings  accom 
panying  successive  increments  of  wealth  are  judgment- 
feelings,  while  in  consumption  the  feelings  are  sensation- 
feelings,  the  presuppositions  being  different,  the  law  of 
their  modification  may  be  different"  ^^  also.  It  will  re- 
main true  always,  as  economists  continually  and  to  good 
effect  point  out,  that  we  have  limited  capacities  for  en- 
joyment and  grow  tired  of  things  either  while  consuming 
them,  or  as  possessors  of  them  in  excess  quantity.  But 
to  the  questions,  what  ^excess,  where  is  the  margin  of 
want,  and  what  the  precise  degree  of  want  at  that  mar- 
gin, our  psychologists  offer  no  answer.  Nor  do  they 
encourage  us  to  make  utility  synonymous  with  desire  or 
with  its  emotional  accompaniments. 

So,  what  is  to  become  of  our  law  of  diminishing  utility.'' 
Plainly,  however  suggestive  our  bids  in  the  open  market 
may  be  of  trading  motives,  they  cannot  be  explained 
merely  by  the  magic  word  "utility."  All  valuations  are 
something  categorically  different  from  physiological 
facts,  or  from  exchange-rates."     Adventitious  values  ^^ 

*^Simmel,  G.,  "Philosophic  des  Geldes,"  p.  59.  See  also  Ehrenfels, 
"System  der  Werttheorie,"  1897,  vol.  I,  p.  93. 

®*  Urban,  "Vacation,"  pp.  164,  169:  "The  law  of  satiety  does  not 
apply  to  the  :reeling-power  of  value";  p.  152(-5):  "The  threshold 
of  value  [marginal] — has — a  cognitive  character  which  distinguishes 
it  from  the  merely  hedonic  threshold";  see  also  pp.  172,  186-88. 
Kreibig,  J.  G.,  and  Meinong,  A.,  similarly. 

^''Watkins,  G.  P.,  "Welfare  as  an  Economic  Quantity,"  1914,  chs. 
13-15,  and  18. 


76  A  CRITIQUE  OF  ECONOMICS 

lurk  everywhere,  and  primary  gratifications  no  longer 
hold  the  field.  So  a  consideration  of  absolute  values  can- 
not rest  on  physiology.  Nor  can  it  be  more  than  a  pre- 
liminary in  a  price  analysis,  the  main  task  being  a  quan- 
titative correlation, 


CHAPTER  THREE 
PRICE 

Non-Psychological  Premises  of  Economics. — Although 
a  rejection  of  sensationalism  as  a  theory  of  valuation 
must  have  serious  consequences  for  systems  which  are 
bound  up  indissolubly  with  it,  Utilitarian  and  Marginal 
economics  might  nevertheless  be  considered  vindicated, 
provided  nothing  else  were  proven  wrong  than  this  re- 
duction of  want  and  value  to  sensations  or  feelings. 
It  is  necessary  therefore,  if  our  critique  of  doctrinal 
economics  is  to  be  thoroughgoing,  to  test  its  treatment  / 
of  prices  independent  of  all  psychology,  or  at  any  rate 
with  reference  to  other  points  than  those  of  a  par- 
ticular psychology.  What  we  must  ask  is:  Can  the  tra- 
ditional reasoning  anent  price  (respectively  shares  of  in- 
come) hold  itself,  supposing  sensationalism  were  quite 
ignored?  Or  are  there  errors  that  condemn  it  on  other 
grounds?  Are  the  laws  proclaimed,  for  instance,'  real 
laws  ?  And  in  what  sense  has  the  search  for  them  yielded 
results  at  all  comparable  with  what  the  canons  of  science 
in  general  demand? 

Now,  in  approaching  the  problem  from  this  angle  we 
are  driven  to  the  necessity,  first  of  all,  of  defining  certain 
terms  frequently  used  in  economics,  and  secondly  to  re- 
state some  of  the  premises  other  than  the  psychological, 
without  which  catallactics  could  not  have  presumed  to 
accomplish  what  apparently  it  did. 

77 


78  A  CRITIQUE  OF  ECONOMICS 

As  regards  the  word  "law,"  then,  we  should  at  the 
outset  emphasize  that  strictly  speaking,  it  always  means 
a  statement  of  things  or  events  regularly  recurring  to- 
gether in  time  or  space,  subject  only  to  such  conditions 
as  may  be  brought  logically  in  harmony  with  said  law. 
That  is  to  say,  the  law  is  an  abstraction  treating  of 
qualities  or  quantities  recognized  as  sequences  or  coex- 
istences. Our  senses  will  present  them  as  parts  or  cen- 
ters of  a  large  complex  of  data,  but  after  these  latter 
have  been  allowed  for,  the  remainder  is  true  to  the  law  in 
all  cases.  Or  to  put  the  matter  differently  again:  A  law 
correlates  things  or  events,  and  we  "determine"  one  fact 
or  set  of  facts  by  referring  to  those  others  which  in- 
variably are  an  accompaniment  of  it.  If  I  speak  there- 
fore of  "determining"  the  price  of  an  article,  I  mean 
that  certain  things  precede  in  point  of  time,  or  go  with, 
that  price,  these  regular  recurrences  constituting  a  law 
of  price.  I  may  bring  other  prices  in  connection  with  the 
particular  one  examined,  or  I  may  look  for  facts  that 
are  not  themselves  prices,  such  as  supply  or  states  of 
mind — supposing  I  could  ascertain  them — or  any  num- 
ber of  things  discoverable  by  my  method.  In  all  in- 
stances, however,  the  determination  of  a  price,  whether 
expressive  of  a  rigid  law  or  not,  will  signify  this  linking 
of  a  series  of  facts  with  it.  Nothing  else  can  mean 
determining  a  price,  and  this  it  is  very  important  to 
remember. 

On  the  other  hand,  the  words  **fixing"  or  "measuring" 
a  price  have  a  less  distinctive  place  in  economics,  albeit 
occasionally  responsible  for  serious  mistakes.  To  "fix" 
a  price  can  mean  no  more  than  to  state  it,  and  what  a 
price  is  we  shall  see  in  a  moment.     Measuring  a  price,  as 


PRICE  79 

against  fixing  it,  must  then  mean  that  we  compare  quan- 
tities of  different  things  that  are  exchanged  for  a  con- 
stant amount  of  some  other  article  serving  as  a  stand- 
ard. In  the  comparison  of  these,  presumably  different, 
physical  amounts  of  different  kinds  of  things  with  some 
one  specified  commodity  I  bring  about  a  measurement, 
precisely  as  I  may  measure  the  length  of  a  table  and  a 
sofa  by  applying  a  physical  standard  such  as  a  meter. 

This  is  the  only  possible  way  of  measuring  prices  be- 
cause a  price  is  itself  the  amount  of  one  article  given  for 
another,  -^  I  may  think  of  both  articles  as  physical  quan- 
tities— ^if  they  are  not  services  rendered — or  I  may  con- 
sider them  as  values  in  the  absolute  sense.  That  does 
not  matter.  But  invariably  a  price  is  the  quantity  of 
one  thing  tangible  or  intangible  exchanged  for  another, 
and  since  exchange  in  modern  times  is  carried  on  chiefly 
by  means  of  money,  which  also  acts  as  a  standard  of 
value,  we  describe  a  price  usually  as  the  amount  of  money 
given  for  an  article  or  a  service. 

How  much  money  is  paid  more  or  less  regularly  for  a 
good,  that  is  one  of  the  chief  questions  with  which 
economists  have  concerned  themselves,  and  it  is  in  watch- 
ing the  analysis  back  of  these  attempts  at  the  discovery 
of  laws  of  price  that  our  attention  is  called  to  their 
strongly  hypothetical  nature.  For  to  begin  with,  eco- 
nomics is  not  really  intent  upon  explaining  any  one  price 
such  as  businessmen  make  their  daily  study.  Not  par-^ 
ticular  actual  prices,  but  rates  of  exchange  relative  ton 
selected  conditions  are  the  subject  of  the  professional 
student.     Economists  so  far  have  always  treated  prices 

*  A  list  of  definitions  of  price  since  1769  is  given  by  Fetter,  F.  A.,    ^ 
in.  Am.  Econ.  Bev.,  vol.  2,  pp.  783-813. 


80  A  CRITIQUE  OF  ECONOMICS 

as  points  on  demand  and  supply  curves,  the  factors  de- 
termining that  point  being  itemized  previously  and  given 
an  imaginary  quantitative  relation.  Premises^  in  other 
words,  have  always  been  essential  to  the  orthodox  state- 
ment of  laws  of  price,  and  these  must  be  carefully 
declared,  if  the  conditional  character  of  economics  is  to 
be  fully  understood. 

Apart  from  the  theory  of  sensationalism,  economics 
has  worked  with  assumptions  of  private  property,  of  free- 
dom of  contract,  of  freedom  of  vocation  and  residence, 
and  with  several  others  more  or  less  clearly  implied  and 
to  be  mentioned  in  a  moment. 

Now,  the  substantial  accuracy  of  the  assumption  of 
private  property  and  freedom  of  contract  and  the  other 
two  items  may  be  readily  granted.  Though  restrictions 
by  government  have  long  been  definitely  made  and  indeed 
added  to  during  the  last  few  generations,  a  sufficient 
amount  of  individualism  has  remained  to  serve  for  the 
ends  of  the  economic  argument.  With  regard  to  com- 
petition, however,  it  must  be  stressed  at  once  that  it  can 
hardly  be  mentioned  as  a  premise  distinct  from  the  others. 
Competition,  it  will  be  seen  at  a  second  glance,  is  not 
something  different  from  freedom  of  contract,  hedonism, 
and  the  rights  of  vocation  or  residence,  but  a  term  rather 
by  which  we  describe  the  aggregate  effect  or  the  psycho- 
logical aspects  of  such  legal  rights  and  human  traits. 
A  little  thought  for  the  way  in  which  economists  have 
always  portrayed  this  competitive  system  will  reassure 
us  on  this  point,  and  incidentally  also  show  its  relation 
to  contract  and  monopoly. 

As    economic    literature   proves  y^    competition    chiefly 

*For  an  illuminating  recent  discussion  of  competition  as  a  pre- 
requisite to  economic  arguments  see,  e.g.,  Amonn,  A.,  "Objekt  und 


PRICE  81 

meant  a  struggle  among  contestants  for  pleasure  and 
gain.  Hedonism  itself  declared  men  to  be  moved  by  con- 
siderations of  advantage,  the  aim  being  to  avoid  pain 
and  to  seek  pleasure.  Enterprise  pivoted  on  these  two 
arch-dispositions  innate  in  all  humans.  But  men  were  by 
birth  unequal.  They  had  different  endowments  of 
strength,  aptitude,  temperament,  and  so  on.  They 
furthermore  lived  amidst  different  environments,  receiv- 
ing unequal  training,  being  helped  or  hindered  by  unequal 
socio-economic  factors  before  they  entered  the  arena  for 
gain,  or  while  battling  within  it.  Thus  men  had  dif- 
ferent chances  in  the  game,  and  freedom  of  contract  per- 
mitted these  differences  to  make  themselves  felt — up  to 
the  point  where  other  considerations  might  call  a  halt. 
Men  were  put  on  an  unequal  footing  so  that  natural  and 
acquired  disparities  might  secure  victory  for  some,  and 
defeat  for  others.  This  is  one  of  the  meanings  of  com- 
petition and  freedom  of  contract,  and  so  a  competitive 
regime  is  nothing  distinct  from  the  data  examined.  If 
men  were  ever  so  unequal,  but  restrained  by  law,  their 
relative  standing  would  be  standardized  for  practical  pur- 
poses. On  the  other  hand,  if  contract  were  completely 
rid  of  regulation,  the  results  need  not  be  what  now  we 
associate  with  competition,  provided  congenital  equality 
led  to  socio-economic  equality.  Or  again,  if  competition 
meant  simply  a  spirit  of  emulation  that  spurred  men  to 
action  and  maximum  output,  without  any  thought  for 
proportionate  reward,  freedom  of  contract  might  be  rec- 
oncilable with  utmost  control  of  bargaining  for  the  ac- 
quisition and  exchange  of  wealth.     But  precisely  because 

Grundbegriffe  der  National-oekonomie,"  1912.  For  a  rejection  of 
competition  see,  among  others,  Hobson,  J.  A.,  "Economics  of  Dis- 
tribution." 


82  A  CRITIQUE  OF  ECONOMICS 

hedonism  referred  to  acquisitive  leanings,  in  full  view  of 
differences  for  work,  competition  had  to  mean  a  system 
in  which  differentials  of  nature  and  of  personal  endow- 
ment and  opportunity  are  legalized,  the  equality  of  all 
consisting  of  their  like  rights  under  law  to  do  the  best 
they  could,  taking  their  fate  stoically,  and  trying  again 
*if  they  failed  the  first  time.     Thus  competition  is  a  play 
/of  differentials  consoriant  to  legal  and  hedonistic  prem- 
/  ises,  but  not  anything  separate  from  them.     The  joint 
I  operation  of  the  premises  is  competition. 

It  follows,  then,  that  monopoly  could  not  well  mean  a 
differential  advantage  only,  although  this  interpretation 
has  found  vogue.  In  a  sense  all  superiorities  are,  to  be 
sure,  a  monopoly.  At  least  they  tend  to  favor  the  emer- 
gence of  quasi-monopolies  for  a  certain  length  of  time 
and  locality.  But  strictly  speaking  this  is  not  what 
economists  could  think  of,  for  that  would  have  involved 
the  repudiation  of  competition.  Nothing  of  the  latter 
would  then  have  remained.  Hence  monopoly  was  not  in- 
J  correctly  defined,  by  some,  as  the  ability  to  augment  total 
net  profits  by  reducing  production  or  sales,  or  as  the 
situation  in  which  one  buyer  faces  many  sellers,  and  vice 
versa.  Monopoly  thus  became  exceptional,  and  competi- 
tion the  rule. 

So  far,  so  good.  After  Ricardianism  had  gained  a 
hold,  however,  a  further  premise  hove  into  view,  and  still 
another  might  have  been  added  for  the  sake  of  logical 
consistency.  Namely,  in  the  first  place,  statics  was  con- 
ceived as  a  constancy  of  socio-economic  conditions  due  to 
which  abstractions  along  the  lines  already  mentioned 
would  become  fruitful,  yielding  exact  laws  such  as  physi- 
cists could  pride  themselves  upon.     Statics  was  thought 


PRICE  83 

to  signify  (quoting  from  a  representative  authority  in 
this  respect)  :  "If  there  is  no  change  in  the  mode  of 
action,  there  is  none  of  that  grander  progressive  move- 
ment by  which  the  structure  of  society  is  altered.  If  no 
labor  and  capital  shifts  its  place  from  group  to  group 
in  the  industrial  system,  there  is  none  of  that  type  of 
movement  which,  in  a  special  and  higher  sense,  we  here 
term  dynamic.  Till  the  ground  forever  with  the  same 
tools  and  get  the  same  kinds  of  crop,  work  in  the  same 
mills  with  the  same  machines  and  materials — in  short, 
change  nothing  in  the  mode  of  creating  wealth — and  you 
have  a  socially  static  industry.  The  producing  organism 
then  keeps  its  form  intact.'*  ^  Some  abstraction  like  this 
was  deemed  to  be  a  logical  prerequisite  to  a  clean-eut 
analysis  of  the  pricing  process,  so  that  for  economists 
statics  and  catallactics  became  virtually  synonyms. 

Secondly,  if  money  served  as  a  medium  of  exchange  and 
as  a  standard  of  value  it  was  necessary  to  the  Utili- 
tarian-Marginal argument  that  the  price-level  be  as- 
sumed constant,  and  hence  the  amount  of  standard 
metal  according  to  the  quantity-theory  of  money.  Such 
a  premise  was  not,  to  be  sure,  specified  among  the  others 
here  discussedj  but  it  might  have  been,  since  the  dispersion 
of  prices  due  to  changes  in  the  volume  of  a  circulating 
medium  or  in  its  rate  of  turn-over  was  a  familiar  fact  by 
the  beginning  of  the  nineteenth  century. 

Definitions. — Turning  now  from  the  presuppositions  in 
psychology  and  political  law  to  the  law  of  price  itself,  we 
must  first  be  careful  to  understand  the  terms  demand  and 
supply,  buyers  and  sellers.     Their  definition  becomes  the 

"Clark,  J.  B.,  *T)istribution  of  Wealth,"  1899,  p.  59.  See  also 
ch.  3. 


84  A  CRITIQUE  OF  ECONOMICS 

more  important  since  economics,  like  geometry,  developed 
many  theorems  from  a  few  basic  postulates. 

As  to  demand  it  was  always  meant  to  refer  to  a  want 
accompanied  by  purchasing-power,  and  not  simply  to  a 
state  of  mind  such  as  a  boy's  who  looks  longingly  through 
the  show-window,  but  has  nothing  with  which  to  reenforce 
his  desire.  Furthermore  it  was  generally,  though  not 
perhaps  by  all,*  believed  that  demand  signified  a  bid 
rather  than  an  act  of  purchase.  In  a  text  quite  recently 
from  the  press  we  find  this  thought  stated  in  the  words: 
"By  the  demand  for  any  commodity  the  economist  means 
in  general  the  quantity  of  that  commodity  which  buyers 
stand  ready  to  take  at  some  specific  price";  it  being 
added  that  "if  we  take  care  not  to  confuse  demand  with 
the  amount  which  people  want  or  need,  we  must  be  equally 
careful  to  distinguish  it  from  the  amount  actually  bought. 
Demand  in  the  correct  sense  might  be  characterized  as 
potential  demand;  the  amount  bought,  as  realized 
demand."  ^ 

The  question  whether  supply  should  mean  total  stock 
of  goods  or  only  as  much  as  was  offered  for  sale,  say  at 
a  minimum  price,  was  likewise  settled  before  very  long, 
and  that  in  favor  of  the  second  construction.  But  an- 
other point  of  scarcely  less  import  was  ignored  in  the 
price  analysis,  namely  the  possibility  that  each  party  in 
an  exchange  might  be  designated  as  either  supplier  or 
demander,  seller  or  buyer.  Because  money  was  the  regu- 
lar medium  of  exchange,  and  sale  for  profit  the  aim  of 

*See  for  instance  Fetter,  "Economic  Principles,"  1915,  vol.  1,  and 
Jevons,  W.  S.,  in  his  "Theory  of  Political  Economy,"  p.  119,  where 
demand  means  purchasef 

'Taylor,  F.  M.,  "Principles  of  Economics,"  1921,  pp.  253-54.  See 
also  Seager,  H.  R.,  "Principles  of  Economics,"  1913,  p.  73. 


PRICE  85 

the  entrepreneur,  it  was  easy  to  forget  that  after  all  the 
relation  between  dealers  was  a  reciprocal  one,  both  play- 
ing exactly  the  same  part  if  barter  for  personal  consump- 
tion of  things  bought  was  the  rule.  Barring  the  defini- 
tion of  supply  as  a  store  of  goods  in  the  physical  sense, 
supply  had  to  mean  supply  on  conditions,  or  in  other 
words,  a  demand  for  a  quid  pro  quo  which  constituted  the 
price.  The  demander  on  the  other  hand  supplied  either 
a  standard  value  in  goods,  or  any  good  exchangeable  for 
something  else.  In  barter  the  true  relation  between  the 
exchangers  would  appear  as  it  could  not  in  a  pecuniary 
regime  where  the  entrepreneur  pursued  aims  in  principle 
different  from  those  of  the  buyer  for  consumption.  By 
a  purchase  of  goods  others  had  to  be  sold;  in  selling 
goods,  others  were  inevitably  bought.  This  was  the  dual 
aspect  of  supply  or  demand,  of  buyer  or  seller  that  must 
not  be  lost  sight  of  in  an  appraisal  of  the  method  by 
which  orthodox  economics  arrived  at  its  law  of  price, 
respectively  of  income. 

Demand  and  Price. — The  failure  of  psychology  in  any 
form,  and  notably  of  sensationalism,  to  provide  us  with 
a  law  of  price,  whether  we  think  of  an  ordinary  business 
transaction  or  of  an  exchange  of  goods  for  the  personal 
use  of  the  exchangers,  may  then  be  explained  as  follows: 

In  the  first  case,  namely,  we  are  confronted  with  the 
undoubted  fact  that  buyers  and  sellers  act  from  different 
motives  and  represent  modes  of  valuation  so  different  in 
kind  that  they  are  really  incomparable.  To  attempt 
therefore  a  reduction  of  prices  to  sensations  or  to  feel- 
ings or  to  any  psychic  condition,  proposing  a  measure- 
ment of  one  by  the  other,  is  to  invite  criticism  as  well 
as    to   court   bitter   disappointments.      The   buyer    who 


86  A  CRITIQUE  OF  ECONOMICS 

resells  what  he  bought  has  nothing  in  common  with  the 
consumer-buyer,  but  much  with  the  seller  who  is  in  the 
business  for  gain.  For  both  of  these  dealers  are  actuated 
by  a  desire  for  profits,  and  not  at  all  by  an  interest  in 
the  use-value  or  utility  of  what  they  deal  in.  That  the 
buyer  for  personal  use  of  goods  has  preferences  and  mar- 
gins of  wants  is  evident.  But  this  does  not  affect  the 
other  two  parties.  No  pain-pleasure  calculus  js  applic- 
a^e  to  buyersjor  resale  or_to^ellers.  Financially  they 
may  be  subject  to  motives  that  a  pure  theory  of  con- 
sumption ignores.  The  utility  of  sellers  is  not  technical, 
like  the  consumer's,  but  entirely  one  of  earning-power. 
However  paradoxical  it  may  seem,  the  technical  utility 
of  goods  used  in  production  by  the  manufacturer  who 
offers  his  wares  for  sale  has  nothing  to  do  with  the  worth 
he  puts  upon  his  business  or  his  individual  goods  as  a 
basis  for  net  profits.  Nor  can,  incidentally  speaking, 
the  purchasing-power  of  consumers,  which  has  long  been 
recognized  as  playing  a  decisive  role,  apply  in  the  least 
to  the  buyer  for  resale  or  to  the  seller.  In  an  entre- 
preneur world,  indeed,  buyers  and  sellers  stand  for  such 
different  principles  of  valuation  that  a  quantitative  rela- 
tion between  values  as  pleasure,  or  of  any  other  sort, 
and  the  prices  of  goods  is  impossible.  Marginism  was 
bound  to  be  in  the  wrong  to  the  extent  that  its  explana- 
tion of  price  rested  on  a  psychological  analysis,  and  this 
regardless  of  whether  it  used  ancient  or  modern  theories 
of  valuation. 

But  suppose  we  imagine  a  world  in  which  people  trade 
purely  for  personal  advantages  of  gratification,  without 
aims  at  business  profits,  and  even  without  the  use  of 
money.     Under  such  conditions,  what  would  be  the  facts 


PRICE  87 

bearing  on  a  law  of  price?  How  would  consumption 
goods  be  priced,  and  what  factors  would  have  to  be  con- 
sidered for  the  formulation  of  a  law  of  price,  if  it  exists? 

At  the  start  it  deserves  noting  that  two  questions  are 
involved  which  make  different  demands  upon  our  time. 
For  the  first  would  be :  Why  are  goods  exchanged,  and  the 
second:  At  what  rate  are  goods  exchanged?  These  two 
questions  are  indeed  quite  distinct,  and  not  to  be  con- 
fused in  a  search  for  principles  of  pricing. 

The  first  assumes  no  more  than  a  desire  on  the  part 
of  men  to  add  to  their  pleasures  by  an  exchange  of 
goods.  If  there  are  two  persons  dealing,  and  each  wants 
the  other^s  goods  more  than  his  own,  different  kinds  of 
articles  will  be  "swapped."  Boys  trade  different  kinds 
of  knives,  or  a  knife  for  a  popgun  in  this  manner.  No 
psychic  states  need  be  measured  by  us  in  order  to  explain 
this  exchange.  All  we  admit  is  the  hedonistic  principle 
and  some  difference  in  want  by  each  for  the  article  held 
by  the  other.  Orders  of  preference  may  become  evident 
as  the  number  of  things  exchanged  is  increased;  but  the 
exact  degrees  of  valuation  entering  into  the  rate  of  ex- 
change may  be  of  no  moment. 

The  matter  is  different,  however,  if  instead  of  one  pair 
of  dealers  we  have  two  or  more  dealers  on  one  side  bid- 
ding for  the  goods  of  one  dealer  on  the  other  side,  or  of 
several  dealers  on  the  other  side.  For  now  a  measure- 
ment of  relative  wants  must  take  place  that  is  decisive 
for  the  price  at  which  goods  are' traded.  It  is  not  the 
comparison  of  wants  between  buyer  and  seller  that 
counts,  but  the  comparison  of  wants  among  buyers  on 
the  one  hand,  and  among  sellers  on  the  other.  The  rate 
at  which  goods  will  be  exchanged  depends  on  the  amount 


88  A  CRITIQUE  OF  ECONOMICS 

of  a  given  good  which  each  of  the  buyers  or  sellers  will 
offer  for  the  desired  good  of  the  opposite  side.  This 
relative  bidding-strength  of  all  the  members  on  each  side 
settles  the  price;  and  so  the  absolute  inequality  of  want 
of  any  one  buyer  as  against  any  one  seller  has,  from  the 
standpoint  of  the  economist,  only  a  secondary  signifi- 
cance. For  what  is  studied  is  price,  not  the  advantage 
of  exchange  as  such.  It  is  to  know  how  price  is  deter- 
mined that  we  search  for  facts  not  relevant  to  an  ex- 
planation of  commerce  itself. 

But  this  being  so,  what  follows  for  the  psychological 
argument  of  Marginism,  indeed,  for  any  correlation  of 
price  with  psychic  data? 

If  we  assume  all  traders  to  possess  equal  stocks  of 
goods  we  must  take  their  preferences  to  be  purely  per- 
sonal. Offerings  of  high  prices,  i.  e.  of  large  amounts 
of  goods,  for  one  article  will  be  offset  by  correspond- 
ingly lower  bids,  in  terms  of  goods,  for  other  articles 
bought.  By  assumption  total  stocks  represent  equal 
purchasing  powers,  so  that  bids  reflect  wants  and  tastes 
only.  These  differences  of  preference  may  be  innate,  or 
acquired  after  birth.  They  may  connect  with  diverse 
factors  not  open  to  inspection,  or  at  any  rate  not  at  all 
measurable  by  known  standards.  As  we  have  seen, 
furthermore,  such  valuations  are  highly  complex  things, 
and  not  to  be  resolved  into  physiological  data  or  sense 
pleasures.  What  is  back  of  each  man^s  degree  and  order 
of  wants,  and  whether  these  may  be  constructed  into  a 
law  of  valuation,  is  a  question  distinct  from  that  of  pric- 
ing. It  has  already  been  intimated  that  laws  of  valua- 
tion in  the  psychological  sense  may  not  exist,  so  far  as 
our  present  knowledge  goes.    But  it  is  certain  that  wants 


PRICE  89 

alone  figure  in  an  analysis  of  rates  of  exchange  among 
dealers  with  like  quantities  of  goods. 

Since  such  a  condition  however  does  not  actually  ob- 
tain, since  inequality  is  the  rule,  the  rate  of  exchange  as 
one  of  amounts  of  things  or  services  offered  for  a  unit 
of  other  things  or  services  varies  with  the  degree  or  range 
of  such  disparities.  What  is  known  as  purchasing-power 
becomes  a  factor  of  primary  significance  in  the  process. 
Intrinsic  want-feelings  or  idea-valuations  can  no  longer 
determine  prices,  for  price  is  the  amount  of  one  thing 
given  for  a  fixed  amount  of  a  second.  Or  to  state  the 
situation  more  precisely:  Like  wants  may  now  he  meas- 
ured  hy  unlike  standards^  the  wants  being  personal- 
psychic,  and  the  standards  definite  quantities  of  wealth 
held  by  each  party  in  the  transaction  (bearing  again  in 
mind  that  we  have  assumed  barter  and  exchange  for  per- 
sonal use,  not  for  gain  by  one  or  both  sides).  On  the 
principle  of  diminishing  utility  it  is  then  safe  to  predict 
that  a  man  will  offer  the  more  of  what  he  has  for  some- 
thing desired,  the  larger  his  total  assets;  and  vice  versa. 
Not  that  prices  must  therefore  be  adjusted  to  the  wealth 
of  each  individual  buyer ;  for  experience  teaches  us  other- 
wise. We  shall  pay  for  goods  a  price  uniform  for  a 
given  region  or  group  of  people  irrespective  of  our  dif- 
ferences in  wealth.  But  none  the  less,  these  differences  of 
stock  owned  by  each  dealer  help  to  determine  what  is 
bought  at  what  rate,  the  members  on  each  side  competing 
with  one  another,  and  the  price  resulting  from  this  meas- 
urement of  wants  in  terms  of  purchasing-power  then  re- 
maining the  same  for  all,  regardless  of  differences  in 
wealth  among  the  traders.  Price,  in  other  words,  is  a 
resultant  of  many  bids,  of  different  numbers  of  traders 


90  A  CRITIQUE  OF  ECONOMICS 

for  each  bid,  and  of  different  amounts  of  goods  covered 
by  each  bid.  This  is  the  smallest  number  of  elements  to 
which  we  can  reduce  price  determiners  on  the  demand 
side.  What  is  back  of  these  bids  is  a  separate  question. 
As  shown  awhile  ago,  it  will  depend  especially  upon 
one  item,  to  wit  the  way  in  which  items  of  wealth — on  our 
present  supposition,  amounts  of  goods — are  distributed 
among  traders.  Since  purchasing-power  has  by  long  ex- 
perience been  proven  to  be  a  chief  factor  in  bidding,  and 
since  psychic  states  are  not  themselves  measurable,  Mar- 
ginists  have  from  the  beginning  used  bids  or  price 
as  the  proof  of  degrees  of  want.  Or  to  quote  from 
Jevons:  "The  price  of  a  commodity  is  the  only  test  we 
have  of  the  utility  of  the  commodity  to  the  purchaser.'^  ^ 

But  let  us  note  a  few  further  facts  before  closing  with 
the  demand  aspects  of  price. 

In  the  first  place,  namely,  we  must  repeat  that  pur- 
chasing-power is  only  one  determinant,  albeit  an  impor- 
tant one.  It  does  not  follow  that  because  total  stocks 
are  a  function  of  the  relative  usefulness  or  value  of  any 
one  portion  of  it,  therefore  they  are  the  only  function. 
Rather,  we  must  be  prepared  to  consider  other  items  in 
this  valuation,  as  already  indicated ;  and  these  others  need 
not  he  at  all  psychic.  Climate  or  nationality  or  age  or 
occupation  or  anything  else  may  serve  as  a  key  to  bid- 
ding just  as  well  as  differences  in  wealth.  What  is  meant 
to  be  emphasized  here  is  merely  the  necessity  of  knowing 
something  about  the  distribution  of  wealth — ^in  terms  of 
money  or  not — in  order  to  arrive  at  a  law  of  price  which 
has  many  determinants,  one  of  which  is  the  range  over 
which  purchasing-power  is  scattered  for  all  parties  in 
« Edition  of  1879,  p.  158. 


PRICE  91 

the  exchange.  What  critics  have  called  the  status  quo, 
relative  to  which  the  orthodox  statement  of  pricing  is 
true,  is  partly  this  distribution  of  wealth  at  a  time. 

But  in  the  second  place,  do  we  really  mean  all  wealth 
in  defining  this  purchasing-power,  or  only  a  part  of  it.'* 
To  carry  out  our  hypothesis  of  exchange  without  money, 
for  personal  use  of  the  goods  exchanged,  we  had  to  start 
with  the  stock  in  hand  as  representing  purchasing- 
power.  But  in  the  existing  regime  of  money  and  ex- 
change for  profit  by  sellers,  do  aggregate  stocks  we  own 
help  to  determine  valuations  and  thus  prices  (on  the  de- 
mand side),  or  instead  certain  portions  of  it.^*  Now,  while 
this  question  cannot  be  categorically  answered,  it  seems 
reasonable  to  believe  that  income  rather  than  total  assets 
is  of  importance,  and  that  such  income  means  to  buyers 
for  consumption  an  annual  flow  of  value  or  purchasing- 
power  rather  than  income  for  any  other  time-unit.  Our 
total  belongings  are  not  likely  to  influence  us,  first  be- 
cause our  feelings  with  regard  to  much  that  we  are  nomi- 
nal owners  of  are  not  very  lively;  secondly,  because  of 
our  inability  to  make  any  kind  of  estimate  of  such  stocks ; 
and  third,  because  of  the  force  of  habit  and  our  disposi- 
tion to  look  more  to  future  income  than  to  values  already 
acquired. 

Finally,  some  diff^erence  between  a  non-pecuniary 
scheme  of  valuation  and  the  pecuniary  must  be  granted 
since  money  has  unique  functions,  thus  inducing  us  to 
value  it  as  we  value  nothing  else.  "The  valuation  of  a 
sum  of  money  as  a  whole,"  it  has  been  observed  by  one 
writer — and  others  have  expressed  themselves  similarly 
— "where  the  separate  instrumental  judgments  are  sup- 
pressed, where  its  indefinite  applicability  to  condition  and 


92  A  CRITIQUE  OF  ECONOMICS 

personal  worths  is  assumed,  and  where  it  is  referred  im- 
mediately to  the  personality,  gives  to  the  sum  of  money, 
as  a  unity,  an  intrinsic  value  which  may  greatly  exceed 
its  actual  value."  ^  Money  represents  a  special  case  of 
value  and  of  valuation  because  it  is  a  universal  denomi- 
nator, a  magnitude  divisible  into  smallest  particles,  ex- 
ceedingly attractive  as  a  counting  device,  and  withal  a 
store  of  treasure  whose  enduring  qualities  compare  fa- 
vorably with  most  of  the  commodities  purchasable  for  it. 
Hence  it  must  be  acknowledged  that  our  estimate  of  a 
fraction  of  a  two  thousand  dollar  annual  income  need  not 
be  exactly  that  of  the  same  fraction  of  two  thousand 
dollars  paid  to  us  annually  in  goods.  But  this  of  course 
does  not  affect  the  main  point  of  the  argument,  viz.,  that 
differences  in  wealth  or  income  figure  prominently  in  the 
making  of  prices,  while  psychic  facts  as  such  do  not. 
Demand  therefore  is  something  different  from  what  either 
sensationalism  or  any  other  psychological  theory  of  price 
laws  would  have  us,  believe. 

Supply  and  Price. — On  the  supply  side  the  determin- 
ants of  price  ordinarily  mentioned  have  been  supply  it- 
self, and  cost  or  expenses.  Not  that  these  three  really 
were  treated  as  distinct  factors,  but  that  they  were  op- 
posed to  demand ;  cost  or  expense  acting  through  supply 
precisely  as  purchasing-power  might  have  been,  and  by 
some  was,  described  as  operating  through  demand.  What 
then  shall  we  say  of  these  determinants,  or  of  others  that 
may  be  detached  from  them,  and  yet  have  validity  in  a 
law  of  price  .f^ 

If  supply  is  to  mean  what  so  frequently  was  said  of 

^  Urban,  W.  M.,  "Valuation,"  1908,  p.  340.  For  like  statements 
see  Simmel,  G.,  "Die  Philosophic  des  Geldes,"  1907,  pp.  272-94,  and 
Elster,  K.,  in  Konrad's  Jahrb.,  1921,  p.  515. 


PRICE  93 

it,  to  wit,  an  offer  of  goods  subject  to  a  certain  minimum 
price,^  then  it  cannot  surely  be  called  a  "determinant" 
of  price;  for  it  would  be  merely  a  quantity  of  goods  ex- 
changed at  a  price — which  is  a  very  different  thing.  And 
we  may  add  a  propos  of  this  thought  that  the  so-called 
equilibrium  ®  of  supply  and  demand  on  those  conditions 
was  no  more  than  a  truism  to  the  effect  that  what  is 
bought  is  sold  at  some  price.  That  of  course  would  be 
incontestable,  but  could  it  deserve  the  title  of  a  law? 
Indeed,  we  might  further  declare  that  such  a  statement 
was  nothing  but  a  corollary  from  the  well-known  premises 
of  hedonism  and  mobility  of  capital  and  labor  through 
freedom  of  contract.  Supply  at  a  price  would  be  de- 
mand as  well  as  supply,  and  could  not  be  considered  as 
a  new  factor  among  those  determining  prices  in  general. 
Thus  we  are  driven  to  the  conclusion  that  supply,  to 
fill  a  definite  need,  must  mean  physical  stock  of  goods  or 
offerings  of  services  to  a  given  amount.  If  supply  means 
this,  we  may  wish  to  find  out  whether  it  keeps  a  more  or 
less  fixed  ratio  to  prices,  for  instance  so  that  prices  rise 
in  inverse  proportion  to  supply,  or  fall  twice  as  fast  as 
supply  increases;  and  so  on.  Such  a  correlation  is  per- 
fectly legitimate  and  has  been  attempted  in  a  few  cases 
both  in  England  and  elsewhere,  but  since  supply  cannot 
properly  mean  anything  else  than  this  volume  of  goods 

on  hand   (rather  than  market  offerings   at  a  price)    it 

« 

»  Vide  Taylor,  F.  M.,  "Principles  of  Economics,"  pp.  268-9.  Jevons, 
in  his  "Theory  of  Political  Economy,"  1879,  pp.  70,  77,  stresses 
supply  per  time-unit. 

•  Similarly,  to  say  "the  ideally  just  price  is  one  which  will  secure 
a  balance  between  production  and  consumption"  is  to  beg  a  question, 
unless  a  just  distribution  of  income  be  previously  defined.  See 
Carver,  Th.  N.,  in  P.  and  P.  of  Am.  Econ.  Assoc,  March,  1919,  p. 
250, 


94  A  CRITIQUE  OF  ECONOMICS 

follows  that  supply  need  not  be  that  of  any  given  mo- 
ment. A  static  view  of  the  pricing  process  becomes  un- 
necessary, not  to  say  illogical,  as  soon  as  we  reject  the 
psychological  approach  and  take  men,  merchants,  con- 
sumers, and  wares-for-sale  as  they  really  function  every- 
where about  us. 

But  with  this  understanding  physical  supply  may  also 
be  profitably  connected  with  other  facts  which  act  di- 
rectly upon  it,  or  may  prove  to  move  in  some  more  or 
less  constant  ratio  to  prices.  Thus  prospects  of  gain 
do  influence  producers  in  fixing  output  and  supply.  Thus 
our  valuations  may  lead  to  increased  output  even  though 
rates  of  return  diminish.  The  more  we  value  something, 
the  harder  we  work  to  get  it;  the  larger  the  amount  of 
capital-goods  and  of  labor-power  dedicated  to  its  pro- 
duction. Again,  monopoly  or  non-reproducibility  may 
affect  supply ;  or  even  more  definitely  cost  or  expenses,  as 
has  always  been  emphasized  by  economists. 

Cost. — Cost  in  this  case  cannot  however  mean  labor- 
pain  or  disutility,-'^^  since  neither  is  measurable.  We  may 
point  to  them  as  elements  in  a  qualitative  analysis,  but 
cannot  use  them  to  establish  a  price,  which  is  a  definite 
quantity  of  two  or  more  goods  exchanged.  Cost,  then, 
must  be  made  objective.  It  must  signify  a  physical 
volume  of  goods  destroyed,  as  for  instance  seed-wheat  by 
the  farmer,  or  the  coal  burned  in  smelting  iron-ore.  Such 
a  correlation  is  permissible,  although  we  have  decided 
long  ago  that  no  law  of  exchange-value  is  discoverable 
by  that  route.  Neither  does  outgo  of  time  or  of  muscu- 
lar effort  seem  to  account  for  the  fluctuations  of  price, 

***On  the  pros  and  cons  of  the  disutility  notion  in  Marginism  see 
Schumpeter,  J.,  "Wesen  und  Hauptinhalt  der  Theoretischen  National- 
oekonomie,"  pp.  221-34. 


PRICE  95 

and  furthermore,  labor-costs  and  other  costs  are  so 
varied  and  complex  that  a  measurement  of  them  seems 
out  of  the  question.  Manual  labor  is  not  at  any  time 
comparable  with  mental  labor.  Joint-costs  cannot  be 
imputed  in  exact  amounts  to  the  several  products  result- 
ing. We  have  fixed  versus  variable  charges,  reproduc- 
tion as  against  production  costs,  and  minima  offset  by 
maximum  costs — always  in  the  non-pecuniary  sense.  How 
may  such  data  be  brought  into  exact  relation  with  prices  ? 
That  it  is  for  the  future  to  find  out. 

Expenses. — Similarly  must  expenses  be  regarded  as 
facts  difficult  of  measurement,  although  an  attempt 
should  be  made  if  a  law  of  price  is  to  be  established.  As 
monetary  outlays  expenses  can  certainly  not  be  called 
determinants,  since  such  facts  are  themselves  values  or 
prices,  belonging  either  to  the  past,  or  figuring  as  esti- 
mates by  the  producer  or  merchant  who  looks  ahead  in 
order  to  conduct  his  business.  As  past  or  prospective 
valuations  these  expenses  can  mean  nothing  in  a  search 
for  laws  of  price  unless  we  exclude  net  profits  and  seek 
to  correlate  statistically  the  remaining  sum  with  final  re- 
tail prices,  or  with  prices  resulting  from  all  immediately 
preceding  expenses,  minus  net  profits.  That  all  expenses 
mclusive  of  net  profits  must  equal  the  sales  price  is  a 
safe  guess,  except  where  absolute  losses  are  incurred.  But 
such  cases  would  be  rare.  On  the  other  hand,  if  expenses 
not  including  net  profits  were  to  show  a  fairly  fixed  quan- 
titative relation  to  prices,  that  would  give  us  a  law  such 
as  any  statistical  method  may  lead  to.  Only,  we  should 
have  to  remember  that,  as  with  costs,  so  here  too  the 
technical  obstacles  in  the  way  would  be  often  insurmount- 
able.    For  once  more  there  would  be  joint  versus  single 


ik 


96  A  CRITIQUE  OF  ECONOMICS 

expenses,  fixed  charges,  maxima  and  minima  or  per- 
haps averages  and  in  addition  the  differences  between 
actual  expenses  of  production  and  these  plus  incidentals 
which,  in  the  present  economic  system,  are  at  times  far 
from  negligible.  What  criterion  is  to  guide  us  in  such  a 
perplexing  situation?  Would  it  not  be  more  a  matter  of 
definition  than  of  scientific  method? 

To  conclude  therefore  our  survey  of  Utilitarian  and 
Marginal  pricing,  the  first  stressing  psychic  facts  and 
the  second  the  role  of  costs  or  of  expenses :  We  shall  have 
to  admit  first  of  all  that  price  is  a  resultant  of  far  more 
facts  or  events  than  our  traditional  analysis  has  per- 
^^  mitted  us  to  understand.  We  have  lip  right  to  picture  all 
elements  as  working  through  supply  and  demand;  but 
we  must  on  the  other  hand  be  willing  to  consider  a 
variety  of  facts  physical  and  otherwise,  if  a  law  of  price 
is  to  be  discovered.  Secondly,  there  is  good  reason  for 
using  psychic  facts  in  a  qualitative  analysis  which  shows 
why  prices  exist,  and  why  they  diff^er;  but  this  is  not  to 
vindicate  those  who  proclaim  preferences  and  intensities 
of  want  to  be  the  final  key  to  prices.  Third,  a  correla- 
tion of  one  group  of  prices  with  another  is  in  order,  and 
ma.y  net  us  as  satisfactory  a  law  as  possibly  any  other 
method.  This  it  remains  for  us  to  investigate,  although 
non-price  facts  must  always  be  accorded  a  prominent 
place  in  either  a  quantitative  or  qualitative  analysis  of 
prices.  Fourth,  with  regard  to  special  problems,  such  as 
the  market  value  of  production-goods  of  lasting  qualities, 
or  of  labor  fighting  for  a  standard  of  living — ^with  re- 
spect to  these  both  our  enumeration  of  determinants  and 
their  measurement  relative  to  price  must  be  much  more 
comprehensive  than  a  science  of  catallactics  could  have 


PRICE  97 

suspected.  An  abstract  price  analysis  has  the  virtue  of 
simplicity,  but  what  if  this  is  its  only  one? 

The  Marginal  Concept. — Having  disposed,  then,  of  the 
fundamentals  in  Utilitarian  and  Marginal  pricing 
we  may  now  proceed  to  a  brief  consideration  of  the 
margin  which  was  designed  to  give  the  subjectivistic 
view  of  economic  processes  a  most  precise  appearance, 
and  in  fact  accounts  for  the  name  Marginism  or  Marginal 
economics. 

Utilitarianism  had  introduced  two  kinds  of  margins, 
namely  one  to  determine  (or  measure?)  rent,  and  the 
other  to  show  what  amount  of  expenses  determined  the 
prices  of  commodities.  The  Ricardian  idea  of  rent,  since 
it  found  the  key  to  rent  in  productivity  rather  than  in 
monopoly,  had  to  take  account  of  different  soil  fertilities 
either  as  such,  or  as  returns  in  dollars  and  cents.  No- 
rent  land  thus  was  differentiated  from  rent-bearing  land 
which  represented  all  yields  more  than  equal  to  a  sub- 
sistence fund  for  the  tenant.  How  much  rent  might  be 
paid,  and  normally  was  paid,  to  the  landlord  depended 
upon  the  difference  between  the  return  of  the  worst  land 
in  use  and  that  of  a  superior  piece  of  land.  In  this  way 
land  at  the  margin  became  most  important  for  the  cal- 
culation of  "economic  rent."  Similarly  the  prices  of 
goods  corresponded,  not  to  an  arithmetical  average  of  all 
expenses  incurred  by  different  producers,  but  to  either 
maximum  or  minimum  expenses ;  to  the  former  in  a  short- 
time  view,  and  to  the  latter  in  the  long  run.  This  was  the 
decision  handed  down  by  the  classicists,  and  accordingly 
least  efficiency  turned  out  to  be  a  decisive  margin,  since 
orthodox  economics  always  took  a  static  view  of  the 
production  and  pricing  process. 


98  A  CRITIQUE  OF  ECONOMICS 

Now,  Marginists  had  to  go  a  step  further  than  their 
predecessors  because  they  had  committed  themselves  to  a 
subjectivistic  interpretation  of  value  or  income.  Since 
they  traced  exchange-rates  back  to  psychic  states,  to 
utilities  or  wants  or  pleasures  or  disutilities,  the  note- 
worthy fact  for  them  was  the  difference  in  degree  of 
pleasure  or  want  in  different  people.  There  was  need  of 
recognizing  first,  various  intensities  of  satisfaction,  sec- 
ondly an  order  of  choice  which  should  make  the  unit  of 
pleasure  in  using  one  class  of  goods  nearly  equal  to  that 
gained  from  the  next  preceding  class,  and  third  a  variety 
of  uses  of  which  a  given  article  might  admit.  Thus  there 
arose  three  kinds  of  margins  for  the  pricing  of  goods, 
although  all  three  had  of  course  a  common  origin  and 
depended  ultimately  on  one  single  law,  viz.,  that  of  di- 
minishing utility  or  pleasure  or  want.  (The  three  terms 
were  used  interchangeably.)  For  the  distributive  analy- 
sis other  margins  were  invoked,  of  which  more  anon.  But 
just  now  let  us  note  that  in  the  resort  to  this  least  want 
or  utility  men  hoped  to  have  explained  price.  Least 
gratifications  or  wants,  it  was  said,  determined  what 
would  be  paid  for  an  article  (or  a  service!).  Goods  were 
bought  so  that  the  pleasure  derived  from  the  last  unit  of 
one  good  was  nearly  equaled  by  that  derived  from  the 
first  dose  of  the  next  good  in  order  of  preference.  Man^s 
hankering  for  maximum  pleasure  was  responsible  for  this 
arangement.  In  the  balancing  of  such  magnitudes  of 
value  or  pleasure  all  exchange  had  its  origin.  As  for 
different  uses  of  any  one  commodity,  the  least  valuable 
would  inevitably  figure  in  its  rating  when  combined  with 
other  things,  or  when  used  by  itself  for  a  greater  satis- 


PRICE  •  99 

faction.^ ^  The  least  want  was  always  the  decisive  ele- 
ment, regardless  of  differences  of  gratification  experi- 
enced by  different  buyers.  Hence  also  these  differences 
could  not  mean  different  prices,  for  the  hedonistic  motive 
would  protect  the  supra-marginal  user  or  buyer.  This 
applied  to  the  demand  side.  On  the  supply  side  the  re- 
tention of  expenses  as  a  determinant  of  price  assigned  to 
least  efficiency  the  same  role  that  Utilitarians  had  granted 
it.  In  a  word,  margins  for  both  groups  of  economists 
served  to  explain  prices,  precluding  the  possibility  of 
more  than  one  price  in  an  open  market,  and  connecting 
price  with  a  differential  that  was  taken  directly  from  the 
realm  of  facts. 

But  what  shall  we  say  today  of  such  margins  as  a  de- 
terminant of  price,  as  an  avenue  of  approach  to  a  law 
of  price  valid  for  all  times? 

In  the  first  place  we  need  of  course  not  dispute  the 
existence  of  differences,  or  the  merit  of  distinguishing 
between  first  and  last  sensations  in  an  act  of  consump- 
tion. That  we  equalize  our  pleasures  frequently,  and 
usually  to  a  degree,  and  that  we  gauge  the  extent  of  a 
loss  not  by  the  greatest  pleasure  the  article  gave  us,  but 
by  the  least  sacrifice  which  will  replace  it — these  points 
may  readily  be  granted.  We  may  object  to  having  dis- 
utilities confused  with  utilities  foregone,  or  to  having 
theorists  insist  upon  a  law  of  one  price  when  our  ears 
and  eyes  tell  us  of  several  prices  in  our  home  markets  on 
the  same  afternoon.     But  these  are  details. 

In  the  second  place  however  we  have  already  seen  that 
Marginal  psychology  as  a  whole  was  wrong,  and  more 

"Due  chiefly  to  Wieser,  F.,  in  his  "Natural  Value"  (transl.  of 
Malloch,  Ch.  A.,  1893).     See  p.  98  et  passim. 


100  A  CRITIQUE  OF  ECONOMICS 

particularly  that  psychic  entities  remain  incommensur- 
able. This  is  true  beyond  doubt  and  interferes  seriously 
with  the  plea  for  margins.  Further,  and  in  the  third 
place,  the  law  of  diminishing  utility  likewise  has  its 
limits,  as  stated  in  the  previous  chapter.  The  Margin- 
ists  themselves  have  pointed  them  out  and  accordingly  min- 
imized the  worth  of  their  standard.  And  this  inapplicabil- 
ity of  utility-margins  becomes  the  more  striking  the  more 
we  consider  our  stock  of  goods  as  a  variety  of  wants,  or  as 
a  pecuniary  income,  for  both  of  which  value- judgments 
prevail  that  have  nothing  in  common  with  sensations. 

Fourth — and  perhaps  most  to  the  point — the  hypothe- 
sis of  a  margin  helps  us  in  no  wise  to  formulate  a  law  of 
price,  for  the  question  still  remains:  Why  did  marginal 
wants  or  values  represent  such  and  such  a  magnitude? 
To  be  sure,  if  psychics  were  measurable  we  might  let  the 
measured  limen  of  gratification  stand  as  a  last  cause  of 
price.  But  inasmuch  as  our  feelings  and  judgments 
cannot  be  so  definitely  ascertained,  we  must  look  else- 
where for  an  explanation.  We  must  find  out  why  want 
or  market-bids,  and  not  pleasure  or  utility,  moved  on  a 
certain  level  or  declined  to  a  certain  minimum  decisive 
for  price.  Objective  causes  and  correlates  should  be 
established  if  a  law  of  price  is  to  appear.  As  long  as 
this  is  not  done,  the  mere  discovery  of  a  least  dose  will 
boot  us  little.  Though  margins  therefore  did  mean  a  re- 
finement of  analysis,  they  provided  no  ultimate  scientific 
explanation.  They  were  a  device  for  dialectics,  a  fiction 
convenient  for  debaters  and  mathematicians  engrossed  in 
"functions,'*  but  hardly  a  solid  basis  for  generalizations. 

The  margin,  in  fine,  added  nothing  to  subjectivism  in 
general. 


.  »'. 


CHAPTER  FOUR 
DISTRIBUTION 

Preliminary  Definitions. — If  economists  had  treated  in- 
comes consistently  as  prices,  without  bothering  about 
forces  other  than  the  psychological  in  their  attempts  at 
explaining  these  incomes,  a  critical  review  of  the  price 
analysis  would  suffice  for  the  distributive  aspects  also. 
It  is  however  wellknown  that  few  writers  were  content 
with  a  discussion  of  income  laws  entirely  from  the  stand- 
point of  demand  and  supply.  What  seemed  to  impress 
all  of  them  was  the  necessity  of  bringing  in  non-psychic 
elements  in  order  to  find  laws  for  shares  comparable  to 
those  of  commodity  prices.  Even  Marginism,  which 
labored  most  conscientiously  to  make  of  economics  an 
exact  science  by  relying  upon  the  hedonistic  calculus  in 
all  its  arguments,  could  not  avoid  at  certain  moments  to 
admit  objective  norms.  Distribution  therefore  is  not 
altogether  a  special  case  of  pricing  for  goods.  There 
are  facts  to  be  considered  which  a  rejection  of  the  sensa- 
tionalistic  theory  of  valuation  does  not  touch,  and  rela- 
tive to  which  one  is  prone  to  ask  more  than  ever:  Were 
laws  of  distribution  really  found,  or  was  the  qualitative 
analysis,  in  spite  of  special  aids,  again  a  half-way  pro- 
cedure? Certainly,  if  one  is  to  believe  the  literature  on 
the  subject,  some  very  creditable  results  were  obtained. 

Both  Utilitarian  and  Marginal  economists  delimited  the 

101 


102  A  CRITIQUE  OF  ECONOMICS 

scope  of  Distribution  as  a  special  division  along  two  main 
lines.  The  first  was  the  exclusion  of  data  not  within  the 
competitive  exchange  mechanism;  and  the  second,  the  as- 
sumption of  specified  legal  conditions  thanks  to  which  all 
producers  could  be  assigned  to  one  of  four  classes.  The 
first  of  the  two  principles  was  the  most  important  because 
of  the  definition  of  "economic"  that  it  involved;  but  the 
second  was  emphasized  more  regularly,  for  it  led  to  prac- 
tical questions  that  critics  were  not  slow  to  take  advan- 
tage of  when  the  need  arose.  It  might  not  strike  people 
as  9  nything  remarkable  that  economics  should  be  a  science 
of  catallactics,  but  it  was  bound  to  arouse  interest  that  in 
reality  there  could  be  only  four  claimants  to  the  wealth 
produced  by  a  nation.  To  define  economic  income  was  to 
state  merely  the  amount  to  be  divided,  and  what  it  did 
not  embrace.  But  the  legal  premises,  which  were  familiar 
to  all,  designated  the  sharers  in  the  product,  emphasizing 
their  rank  and  social  prestige  in  some  measure;  and  that 
might  well  become  a  popular  issue. 

Let  us  note  at  the  outset,  then,  that  economists  always 
distinguished  between  a  dividend,  its  sharers,  and  the 
share-amounts.  The  dividend  from  a  common  sense  stand- 
point would  probably  be  the  total  income  of  a  nation  in 
goods  and  services,  regardless  of  whether  all  of  it  was 
offered  for  sale  and  thus  exchanged  at  a  price,  or  not. 
But  for  a  science  of  catallactics  that  of  course  could  not 
be  the  definition.  By  "dividend"  for  purposes  of  finding 
income-determinants  was  meant  exclusively  such  wealth  as 
entered  the  open  market.  Two  sources  of  income  there- 
fore were  ignored  by  orthodox  analysis,  viz.,  first  non- 
competitive payments  in  kind  resulting  on  the  one  hand 
from  certain  legal  relations  or  on  the  other  from  produc- 


DISTRIBUTION  103 

tive  effort  such  as  the  work  of  married  women,  children, 
and  other  people  productive,  say,  after  business  hours; 
and  secondly  incomes  not  earned  by  personal  eifort,  or 
at  least  not  directly  connected  with  it,  but  none  the  less 
accruing  to  people  on  occasions.  Thus  inheritances, 
gifts,  finds,  endowments  and  other  instances  of  charity, 
life-insurance,  bonuses  on  various  grounds,  and  the 
results  of  gambling,  all  these  ways  and  forms  of  ac- 
quisition remained  necessarily  outside  of  the  distributive 
scheme  of  economists.^  Whatever  portion  of  the  grand 
total  of  property-transfers  was  not  due  to  production- 
for-exchange,^ — and  it  is  still  considerable,  possibly  is 
on  the  increase — escaped  examination,  it  being  not  adapt- 
able to  a  hedonistic  principle  of  a  definite  quid  pro  quo. 
An  unworked  field  of  such  extension  might,  to  be  sure,  be 
considered  a  regrettable  defect  in  any  theory  of  distribu- 
tion, but  the  approach  to  income  through  price  left  no 
alternative. 

Similarly  the  recognition  of  only  four  sharers  might 
have  been,  and  at  times  has  been,  criticized  as  a  barren, 
if  logical,  abstraction  of  men  too  much  bent  upon  weaving 
a  system.  It  has  been  pointed  out  how  artificial  this  four- 
fold classification  of  earners  is,  and  how  much  more  prac- 
tical the  periodic  survey  made,  e.  g.,  by  the  census-taker 
who  finds  out  about  personal  incomes  or  family  budgets,  or 
about  the  financial  standing  of  specified  occupational 
groups.     The  official  sharers  of  the  science  of  economics 

*  For  a  list  of  income  sources  other  than  services  within  the  ex- 
change system  see,  e.g.,  Ely,  R.  T.,  "Property  and  Contract,"  vol. 
I,  pp.  51-5.  A  well-known  threefold  classification  of  distributive 
processes  is  that  of  Clark,  J.  B.,  "Distribution  of  Wealth,"  ch.  2. 

^Schumpeter,  J.,  "Wesen  und  Hauptinhalt,"  p.  321;  also  an  article 
in  Arch.  f.  Sozialw.  und  Pol,  1916-17,  pp.  1-89.  See  also  Wagner, 
A.,  "Theoretische  Sozialoekonomik,"  1907,  Part  I. 


104  A  CRITIQUE  OF  ECONOMICS 

represent  a  proprietary  regime  in  which  owners  were  con- 
trasted with  the  proletariat.  Those  who  had  land,  or 
capital  other  than  land,  made  up  two  classes.  The  cap- 
tains of  industry  who  might  as  such  have  neither  capital 
nor  land,  but  hired  the  use  of  them,  constituted  the  third 
party,  while  the  laborers  they  employed  under  contract 
represented  a  fourth  contingent.  Thus  there  were  two 
sharers  with  property,  one  with  acquired  rights  of  man- 
agement of  land,  capital,  and  labor,  and  one  that  did  the 
work  set  before  him  by  the  enterpriser.  Landlord,  capi- 
talist, enterpriser,  and  laborer  made  up  the  family  of 
sharers  in  the  social  dividend.  The  law  gave  two  of  them 
a  right  to  income  from  property,  and  the  other  two  a 
right  to  income  by  personal  effort.  The  manager  of  the 
other  three  sharers  had  no  guaranteed  income.  He  was 
in  this  respect  the  exception,  and  therefore  proved  from 
the  beginning  an  embarrassing  figure  in  the  distributive 
process.  However,  it  should  also  be  remembered  that  a 
sharer  was  not  necessarily  a  living  individual,  a  real 
person;  nor  always  the  participant  in  only  one  of  the 
four  shares.  For  in  the  first  place  legal  persons  like  cor- 
porations would  secure  a  large  portion  of  the  grand  total, 
and  in  the  second  place  any  one  sharer  might  in  his,  or  its 
own  legal,  person  combine  two,  three,  or  all  of  the  sharers. 
A  farmer  as  entrepreneur  (enterpriser)  might  hold  bonds 
and  get  interest,  work  off  and  on  for  others,  getting  wages, 
and  lease  out  part  of  his  part,  thus  collecting  rents.  A 
sharer  was  therefore  a  theoretical  entity.  Many  physical 
persons  would  make  up  one  "sharer,"  and  one  person 
might  represent  four  "sharers"  as  economists  used  the 
term. 

Shares,  as  distinguished  from  sharers,  were  the  amounts 


DISTRIBUTION  105 

going  to  labor,  capital,  land,  and  enterprise.  These  four 
sharers  together  would  get  the  whole  dividend  as  for- 
mally defined ;  and  there  could  be  nothing  left  over.  But 
if  we  ask  what  the  share  meant,  what  the  unit  for  income- 
analysis,  the  answer  would  not  be :  A  portion  of  the  total 
within  the  exchange-mechanism,  but  a  fraction  of  any  pro- 
duction-unit suiting  definitions  of  value  and  production. 
H[ow  much  of  the  national  dividend  each  sharer  procured 
could  not  be  ascertained  by  the  premises  and  mode  of  rea- 
soning employed  by  economists,  hence  was  of  no  immediate 
concern  to  them.  It  would  of  course  follow  that  if  all 
the  shares  for  each  particular  transaction  were  added  up, 
then  the  share  of  each  of  the  four  claimants  in  the  whole 
national  income  would  be  measured.  But  this  was  only  of 
incidental  interest.  What  engaged  the  attention  of  stu- 
dents was  the  manner,  the  principle,  by  which  any  one 
product  in  the  precise  scientific  sense  was  divided,  and 
this  led  at  once  to  a  consideration  of  hedonistic  premises. 
Since  men  sought  maximum  gain  at  minimum  cost,  since 
value  was  something  (tangible  or  intangible)  scarce, 
wanted,  and  legally  transferable,  and  since  production 
consequently  meant  the  creation  of  values  rather  than 
that  of  things,  the  proof  of  production  was  an  addition 
of  value.  The  unit  for  distributive  analysis  therefore 
was  either  that  value  created  before  the  very  first  sale  of 
a  good  or  service  took  place,  or  that  vncrement  of  value 
occurred  between  any  two  sales.  There  were  form  and 
place  and  time  utilities,  and  there  was  even  a  creation  of 
value  through  effectuating  a  legal  transfer  of  property 
rights,  as  in  the  case  of  a  real  estate  broker.  Thus  ac- 
quisitive and  creative  norms,  for  one  thing,  might  easily 
be  confused,  since  according  to  orthodoxy  the  proof  of 


106  A  CRITIQUE  OF  ECONOMICS 

"production"  was  this  addition  of  values,  whether  due  to 
personal  effort  or  not;  while  for  another  thing  any  one 
productive  act  might  involve  all  four  shares  of  profit,  rent, 
interest,  and  wages.  In  the  sale  of  a  fountain-pen,  e.  g., 
the  store-keeper  would  claim  a  profit ;  the  clerk  employed 
would  get  a  wage ;  the  owner  of  the  building  in  which  the 
store  was  located  would  get  rent;  and  if  somebody  held 
a  mortgage  on  the  merchandise  there  would  be  a  deduction 
for  interest.  This  followed  from  the  entrepreneur  view, 
and  hence  a  variety  of  conditions  helped  in  each  sale,  in 
each  productive  act,  to  determine  shares.  Nay,  on  any 
i  but  a  psychological  analysis  the  determinants  for  different 
I  productive  acts  would  vary  so  much  that  a  law  of  income 
V  could  hardly  be  established.  The  objective  approach  to 
income  was,  in  other  words,  inc omp at ihlelmilTtlie  ideal  of 
an  exact  distributive  law,  or  set  of  laws. 

How  then  was  the  search  for  laws  conducted? 
The  Ricardian  Scheme. — ^As  an  excellent  example  of 
Utilitarian  theory  may  be  taken  the  Ricardian  which, 
with  some  alterations  that  do  not  matter  for  present 
purposes,  has  survived  to  this  day.  Ricardo,  we  know, 
relied  upon  laws  both  of  physical  and  of  human  nature, 
though  the  distinction  was  not  offered  in  so  many  words. 
He  borrowed  from  Malthus  the  idea  of  a  subsistence  fund, 
and  he  went  to  other  contemporaries  to  formulate  the  law 
of  rent  that  passes  under  his  name.  There  being  but 
three  shares,  the  problem  was  neatly  solved.  For  labor 
would  get  no  more  than  was  essential  to  a  bare  living  and 
to  the  maintenance  of  a  family.  The  landlord  obtained 
the  whole  yield  of  land  better  than  marginal  or  no-rent 
land.  The  pressure  for  the  product  (say  wheat)  being 
the  cause  of  the  cultivation  of  successively  inferior  soils, 


DISTRIBUTION  107 

the  hedonistic  proclivity  of  man  and  of  the  owner  of 
land  in  particular  precluded  the  chance  of  the  produce 
being  sold  directly  proportionate  to  expenses  or  to  non- 
monetary costs.  What  was  left  was  then  profit,  which 
included  interest. 

Variants  of  this  scheme  were  to  be  sure  submitted  in 
the  course  of  time,  and  Americans  especially  are  ac- 
quainted with  F.  Walker's  treatment  of  wages  as  a  residual 
share.  It  was  argued  that  labor  got  its  own  product  minus 
the  shares  of  land,  capital,  and  enterprise.  Rent  was 
again  the  supra-marginal  product,  interest  a  reward  for 
abstinence,  and  profit  the  difference  between  maximum  and 
less  than  maximum  expenses.  The  lower  an  enterpriser's 
costs  (expenses)  of  production  relative  to  the  expenses 
of  the  less  efficient  rival,  the  greater  his  profit.  It  was 
a  rent  like  the  landlord's,  albeit  more  of  a  contingent  in- 
come because  capital  was  not  a  monopoly  like  land  taken 
as  a  whole.  Labor  thus  claimed  all  it  had  produced  after 
deduction  of  the  other  quota. 

Now,  an  important  difference  will  be  seen  to  exist  be- 
tween the  original  and  the  later  objective  schemes  of  dis- 
tribution. For  according  to  Ricardo  physical  output  was 
a  true  differential,  states  of  mind  being  ignored.  The 
masses  received  enough  to  live  and  to  perpetuate  their 
kind.  The  landlord  had  to  pay  the  maker  of  capital- 
goods  a  price  equal  to  maximum  costs  of  production.  This 
he  reckoned  as  part  of  his  costs  of  producing  wheat  when 
computing  his  rent.  Even  land  next  to  no-rent  land  used 
some  capital-goods.  This  land  therefore  represented  the 
marginal  strip,  above  which  existed  lands  yielding  more 
wheat,  that  is  to  say  a  surplus  converted  into  rent.  The 
owner  of  the  soil,  then,  did  no  worse  than  the  enterpriser 


108  A  CRITIQUE  OF  ECONOMICS 

in  the  city.  They  both  shared  in  a  differential  advan- 
tage of  capital,  immobile  or  mobile.  It  was  the  laborer 
whose  share  was  at  an  absolute  physical  minimum,  except 
when  his  employers  in  farm  and  factory,  for  reasons  not 
here  important,  allowed  him  a  mite  above  subsistence.  But 
it  was  always  physical  goods  that  could  be  pointed  to  as 
the  shares.  A  pecuniary  or  psychic  measurement  was  not 
logically  necessary,  and  besides  Ricardo  held  that  in  the 
long  run  profits  would  approach  wages,  so  that  the  sacks 
of  wheat  above  those  of  marginal  harvest  formed  the  only 
residuum.  Eventually  "almost  the  whole  produce  of  the 
country,  after  paying  the  laborers,  will  be  the  property 
of  the  owners  of  the  land  and  the  receivers  of  tithes  and 
taxes."  Thus  was  a  scientific  determination  of  shares 
made  possible  by  the  Ricardian  analysis. 

As  soon  as  abstinence,  however,  was  introduced  as  a 
cause  for  a  fourth  share,  to  wit  interest,  and  as  soon  as 
costs  were  defined  strictly  as  monetary  outlays,  the  Utili- 
tarian scheme  lost  its  logical  coherence.  For  a  psychic 
entity  was  now  measured  by  a  price,  namely  an  interest- 
rate,  and  in  the  second  place  expenses  involved  a  begging 
of  the  question.  The  share  of  capital  could  not  be  said  to 
be  "determined"  by  abstinence  since  it  was  used  as  proof 
of  a  pain  of  non-consumption,  the  pain  rising  as  the  in- 
terest-rate did,  and  vice  versa.  Nor  could  expenses  render 
the  service  that  things  did,  since  they  were  themselves 
values  which  had  to  be  further  explained  through  some- 
thing else  than  value,  if  a  real  correlation  was  to  be  estab- 
lished between  them  and  the  price  of  services.  Shares 
consequently  ceased  to  follow  laws  in  the  scientific  sense  of 
the  term.  If  a  law  of  shares  was  still  to  be  found  inquiry 
had  to  extend  to  physical  facts,  not  to  values.     Some 


DISTRIBUTION  109 

such  facts  were  indeed  adduced.  Risk,  for  instance,  came 
to  figure  in  the  determination  of  wages,  or  irksomeness  of 
occupation,  or  again  a  standard  of  living ;  that  is  a  state 
of  mind  or  custom  whose  own  explanation  was  not  at- 
tempted because  it  lay  outside  of  the  price  system.  Not 
that  there  could  be  any  objection  to  the  discussion  of 
these  non-hedonistic  elements.  On  the  contrary,  it  has 
more  than  once  been  intimated  that  a  formulation  of  price 
jaws  necessitates  such  studies.  But  we  must  also  note 
that  in  so  enlisting  the  aid  of  non-psychic  and  non-pe- 
cuniary factors.  Utilitarianism  confessed  the  fallacy  of  a 
purely  psychic  causation.  Marginists  should  have  been 
warned  by  this  experience  of  their  predecessors ;  but  of 
course  they  were  not.  They  went  ahead  serenely,  hoping 
to  achieve  by  a  strictly  psychic  analysis  what  Utilitarian- 
ism had  at  first  tried  to  do  by  a  correlation  of  values  with 
things  such  as  labor-amounts,  and  later  on  had  sought  to 
accomplish  by  taking  expenses  objectively. 

On  Wages  and  Profits. — Deferring  the  consideration  of 
margins  for  a  while,  and  taking  up  first  the  shares  of 
personal  effort,  i.  e.,  wages  and  profits,  what  was  the 
procedure  of  the  subjectivists.^^ 

The  analysis  which  sufficed  for  consumption  goods,  par- 
ticularly individual  utilities,  might  of  course  have  been 
applied  also  to  labor-services,  and  in  so  far  as  all  incomes 
constituted  prices  nothing  else  should  really  have  been  at- 
tempted. But  a  number  of  elements  peculiar  to  labor- 
prices  were  soon  recognized  and  taken  account  of.  To 
begin  with,  for  instance,  a  standard  of  living  was  eventu- 
ally admitted  to  interfere  with  a  strict  competitive 
interpretation  of  wages.  Labor  was  not  a  commodity 
merely,  or  perhaps  not  at  all — as  the  unionists  would  have 


110  A  CRITIQUE  OF  ECONOMICS 

it.  A  minimum  of  allowances,  irrespective  of  what  indi- 
vidual bidders  and  a  merciless  enterpreneur  regime  would 
lead  to,  came  to  be  accepted  as  a  modifying  factor.  In 
the  second  place,  economists  at  an  early  date  had  reckoned 
with  objective  data,  even  when  Utilitarian  standards  did 
not  call  for  them.  While  some  harped  on  time  or  outgo 
of  energy  as  possible  determinants,  others  referred  to  dif- 
ferent degrees  of  risk  and  disagreeableness,  or  to  expenses 
of  training  skilled  labor,  or  to  the  number  of  laborers 
available  at  a  given  moment  for  a  particular  class  of 
production.  All  these  and  other  correlates  figured  in 
treatises  and  to  this  extent  betokened  a  departure  from 
either  an  iron-law  of  wages  or  a  purely  psychological 
standpoint. 

But  an  important  circumstance,  as  soon  as  subjective 
norms  were  invoked,  was  the  large  amount  of  labor  em- 
ployed, not  only  to  render  personal  services  for  the  satis- 
faction of  wants,  but  also  as  a  means  to  another  end, 
whether  this  latter  took  material  form  or  remained  itself 
a  service.  For  Marginists,  that  is  to  say,  the  services  of  a 
butler  or  physician  might  be  said  to  follow  the  law  pertain- 
ing to  consumption  goods ;  but  what  a  brakeman,  e.  g.,  or 
a  mechanic  produced  who  helped  turn  out  furniture  or 
tools  for  building  operations  could  not  so  be  related  to 
want  and  purchasing  power.  Hence  the  resort,  almost 
from  the  start,  to  a  productivity  theory;  and  hence  the 
desire  to  compare  or  connect  causally  definite  amounts  of 
output  and  wages. 

What  however  was  productivity  to  mean  in  that  case.? 
Would  it  be  physical  things  or  useful  services  as  such,  or 
valuable  items,  or  in  short  values.?  The  issue  was  plainly 
a  vital  one  and  could  not  be  dodged.    Even  though  physi- 


DISTRIBUTION  111 

cal  results^  were  meant,  how  could  these  be  measured? 
Since  most  services  were  delivered  in  joint  efforts  yielding 
a  single  product,  did  not  a  problem  in  imputation  arise 
that  would  defy  the  ingenuity  of  economists  ?  This  surely 
was  understood  by  many  and  forthwith  felt  to  be  an 
insuperable  obstacle.  But  on  the  other  hand,  if  produc- 
tivity was  construed  to  be  value-output,  as  it  logically  had 
to  be,  was  not  then  the  question  raised  what  determined 
this  quantity  of  value?  When  and  why  was  a  service,  say 
the  brakeman's  or  the  mechanic's,  worth  so  much,  and  in 
case  of  differentials  among  laborers  with  one  employer  or 
with  many,  or  among  such  as  were  self-employing,  which 
productivity  was  decisive? 

As  will  be  shown  in  a  moment,  when  margins  come  up 
for  consideration,  this  last  question  of  differentials  was 
carefully  studied,  and  besides,  there  were  the  familiar 
norms  of  maximum  and  minimum  expenses.  But  just  now 
it  is  the  dependence  of  productivity  upon  a  broader  price 
law  that  counts,  and  on  this  point  Marginists  had  to 
acknowledge  either  ignorance,  or  a  begging  of  the  question. 
Wage-laws  consequently  could  not  be  affirmed  to  have  been 
found,  even  though  they  might  exist. 

And  similarly  with  the  question  of  profits,  which  so 
customarily  were  regarded  as  a  residual. 

An  objection  to  this  argument  was,  of  course,  the  fact 

that  net  profits   could  not   theoretically  exist  in   static 

economics ;  for  hedonism  and  the  mobility  of  labor  and 

capital  under  competitive  conditions  tended  to  level  all 

shares,  leaving  instead  of  profits  simply  wages-of-manage- 

ment.     This  was  the  usual  reply  of  those  who  inquired 

'On  use  of  mental  measurements  for  finding  eflSciency  and  fixing 
wages  see  Woodbery,  R.  M.,  in  Quarterly  J.  of  Ec,  1916-17,  pp, 
690-704. 


112  A  CRITIQUE  OF  ECONOMICS 

with  frankly  critical  intent  into  the  how  and  what  of 
profits.  But  in  the  first  place,  such  wages-of-management 
would  still  offer  the  same  difficulties  of  analysis  as 
labor-prices,  and  in  the  second  place  there  remained,  in 
the  real  world,  none  the  less  a  surplus  above  such  wages- 
of-management.  Thus  the  objection  to  Marginism  was 
first  that  it  could  not  explain  a  very  large  part  of  the  in- 
come divided  within  catallactics,  and  secondly  that  final 
net  profits  could  never  be  coupled  with  a  sensationalistic 
or  with  any  other  psychological  doctrine  of  valuation. 
Correlations  of  a  statistical  sort  might  be  made,  but  that 
was  unorthodox;  and  if  against  this  it  was  urged  that 
profits  were  aleatory,  then  again  no  law  of  profits  appar- 
ently obtained.  In  either  case  the  phenomenon  of  profits 
proved  a  profound,  inscrutable  mystery.  And  so  pos- 
sibly it  is. 

Rent  and  Interest. — ^But  what  of  rent  and  interest  as 
prices  for  services  exchanged  in  an  open  market.'^  Let 
us  see. 

Rent  in  many  cases  was  a  price  for  the  use  of  land  for 
its  own  sake,  without  any  intermediate  link  of  concrete 
goods  won  from  the  soil.  As  site  for  an  athletic  field  or 
a  private  residence  land  might  therefore  yield  revenues 
conformable  to  the  general  laws  of  price,  supposing  they 
had  been  discovered.  But  once  more,  not  only  was  in  that 
case  the  old  psychological  analysis  inadequate  for  finding 
a  law,  but  also  most  services  of  land  satisfied  wants  only 
in  a  roundabout  way,  most  often  by  yielding  produce  as 
food  or  raw-materials  for  production.  Thus  all  the  short- 
comings of  the  productivity-theory  applied  to  rent  as  well 
as  to  other  shares.  Physical  output  would  never  do,  since 
supply  in  the  physical  sense  had  not  been  proven  to  be  a 


DISTRIBUTION  113 

fixed  function  of  prices.  Value  productivity  referred  back 
to  values  of  the  derived  products,  and  thus  to  the  funda- 
mental problem  in  pricing  which  psychology  could  not 
solve.  And  in  addition  joint- values  offered  the  unanswer- 
able question  of  an  allocation  of  shares  in  the  final  pro- 
duct. How  could  rent  be  considered  explained  merely 
because  it  was  defined  as  a  supra-marginal  value?  What 
did  this  boot  if  no  law  for  the  amount  of  surplus  was 
found,  if  no  events  could  be  shown  to  accompany  more  or 
less  regularly  a  stated  sum  of  rental  values?  This  side  of 
the  situation  was  in  itself  puzzling  enough,  but  joint 
productivity  was  a  further  challenge  to  the  economist. 
Nearly  all  land-services  represented  joined  values.  Costs 
as  improvements  of  the  soil  might  be  absent,  but  labor 
was  nearly  always  an  ingredient  in  the  product.  How 
allot  the  several  parts  of  the  product  so  as  to  isolate  rent? 

Now,  if  such  were  harassing  questions  anent  rent,  the 
task  of  Marginists  in  expounding  the  principles  of  interest 
was  even  more  exacting.  In  the  course  of  time  a  great 
deal  of  labor  was  spent  upon  the  problem,  but  really  in 
vain  because  of  a  subjectivistic  analysis.  Besides,  there 
was  much  confusion  as  to  the  term  "capital,"  so  that 
interest-rates  seemed  to  obey,  not  one  law,  but  several. 

Interest  was  the  price  paid  for  the  use  of  capital ;  this 
all  agreed  to.  But  what  was  capital?  The  word  had 
several  uses  which  did  not  all  have  the  same  bearing  on 
loan-prices.  From  one  standpoint  capital  was  a  produc- 
tion-good used  to  produce  consumables,  and  this  tech- 
nological relation  would  exist  whether  private  property 
were  abolished  or  not,  whether  interest  had  a  price  or  not. 
The  old  question  that  Karl  Marx  had  raised  might  have 
been  settled  on  this  principle.     We  might  contend  that  a 


114  A  CRITIQUE  OF  ECONOMICS 

nation  is  interested  only  in  efficiency,  and  that  capital 
therefore  need  mean  nothing  else  than  a  means  of  indirec- 
tion in  prodmctive  fields,  a  link  in  a  roundabout  process 
of  production  by  which  cost  was  greatly  lowered  and 
the  wellbeing  of  the  majority  furthered. 

By  an  individualistic  interpretation,  however,  the  thing- 
aspect  would  be  subordinated  to  a  value-aspect.  Capital 
would  become  a  basis  of  profits  or  a  right  to  income,  or  a 
measure  of  expected  differential  incomes,  and  for  this 
reason  bear  testimony  to  the  acquisitive  trait  in  human 
nature  rather  than  to  the  creative.*  If  for  the  temporary 
use  of  my  wealth  I  could  charge  the  borrower  in  fractions 
of  the  physical  amount  of  wealth,  or  in  percentages  of  its 
money-value,  relating  my  charge  furthermore  to  time,  this 
rate  of  interest  might  become  a  standard  for  measuring 
other  kinds  of  income.  Any  kind  of  wealth  might  be  capi- 
tal, regardless  of  its  use.  The  sum  of  values  loaned  out 
might  be  money  instead  of  tangible  productives  or  con- 
sumption-goods. And  so,  to  be  sure,  it  usually  was.  The 
entrepreneur  system  thought  of  money  when  it  mentioned 
capital,  not  of  technical  production  goods  or  of  goods  for 
personal  gratification.  Capital  was  a  fund  of  values  ex- 
pressed in  units  of  the  standard  currency  of  the  country. 
Whether  the  borrower  bought  consumption  goods  with  his 
loan,  or  yam  or  printing  presses,  did  not  matter  to  the 
lender.  He  simply  advanced  capital,  and  received  it  back 
at  the  end  of  a  year  with  an  added  amount  representing 
the  price  for  the  loan.  He  received  the  "principal"  plus 
five  per  cent  of  it  for  the  use  he  had  allowed  somebody  else 
to  make  of  the  "capital."    Capital  thus  was  a  value-fund 

*  Several   definitions   of   capital   from   standpoint   of  businessmen 
are  given  by  Woolman,  L.,  in  Am.  Ec.  Rev.,  1921,  p.  39. 


DISTRIBUTION  115 

measured  in  terms  of  money;  nothing  else.  A  lender*s 
capital  might  be  turned  into  consumption  goods  by  the 
borrower ;  or  this  latter  might  purchase  technical  produc- 
tives  (production-goods)  with  it.  The  word  "capital" 
would  still  be  used  for  both  groups  of  value,  but  that  was 
unfortunate,  and  a  natural  source  of  misunderstandings. 

There  was  however  a  third  side  to  the  question.  For  if 
money  as  a  medium  of  exchange  became  capital  when 
loaned  out,  bearing  an  interest  the  while,  might  not 
production-goods,  since  they  were  a  lasting  source  of 
profits,  acquire  a  value  relative  to  the  interest-bearing 
power  of  money,  i.  e.,  proportionate  to  the  excess  of  net 
profits  above  the  interest-rate?  Could  not  a  technical 
agent  be  credited  with  differential  profits  and  thus  assume 
a  value  above  its  original  purchase-price,  irrespective  of 
whether  it  had  cost  anything  or  not  ?  Couldn't  intangible 
assets  emerge  that  would  reflect  the  prevailing  interest- 
rate  for,  say,  a  hundred  dollars.? 

The  answer  of  course  is  that  all  this  was  possible  and 
was  done  continually.  The  business  world  took  the  inter- 
est-bearing power  of  money  for  granted,  and  rated  its 
technological  means  of  production  accordingly ;  that  is, 
if  they  were  not  destroyed  in  one  single  act  of  production ! 
Yarn  would  be  capital  both  in  the  sense  of  being  a  techno- 
logical means  to  an  end,  and  as  a  value-fund  which  was 
borrowed  at  a  price,  or  might  be  loaned  out  at  a  price. 
But  being  used  up  in  the  weaving  it  could  not  be  rated 
otherwise.  The  power-loom,  on  the  other  hand,  might  be 
given  credit  for  profits  made  by  the  enterpriser  with  the 
aid  of  other  capital  and  of  labor  and  land,  and  if  the  net 
profits  rose  much  above  the  current  interest-rate,  the  value 
of  the  loom  was  figured  higher  in  proportion.     What  is 


116  A  CRITIQUE  OF  ECONOMICS 

known  as  "capitalization'*  took  place ;  and  here  we  have  a 
third  meaning  of  the  word  capital.  Differential  incomes 
of  business  were  measured  by  a  standard  that  was  the 
prevailing  interest-rate  for  all  loans,  excepting  money- 
rates. 

Now,  the  economist  in  studying  the  price  for  the  use  of 
value-funds y  or  ordinarily  in  modern  society  for  the  use  of 
money  in  one  form  or  another,  was  not  concerned  with  any 
but  the  second  meaning  of  "capital."  He  did  not  deal 
with  capital  as  technological  goods,  nor  with  such  assets 
as  capitalized  profits.  It  was  the  supply  of  loan-funds 
that  interested  him  if  he  was  to  account  for  that  share 
known  as  interest.  It  was  a  question  of  finding  out  how 
this  supply  came  into  existence,  and  what  law  of  price 
migh£  be  discovered  regarding  it. 

This  being  so,  one  fact  stands  out  prominently  at  the 
start,  and  that  is  that  costs  in  the  ordinary  sense  could 
not  explain  capital.  None  of  the  shares  could  be  related 
closely  to  costs,  as  we  have  already  seen;  for  labor  and 
enterprise  were  not  chattels,  but  the  rulers  of  chattel, — 
to  say  nothing  of  the  unique  role  of  the  enterpriser  as 
captain  of  the  productive  process ;  while  land  had  no 
costs  in  so  far  as  it  produced  without  aid  of  either  labor 
or  capital.  So  what  was  to  be  the  cost  of  producing 
capital,  or  the  principle  that  regulated  its  supply? 

As  remarked  before,  resort  was  early  had  to  a  psycholo- 
gical factor,  namely  to  the  pain  of  refraining  from  con- 
sumption. It  was  held  that  men  suffered  by  not  using 
immediately  what  there  was  in  their  hands,  and  that  this 
sacrifice  called  for  special  inducements  such  as  an  interest 
on  a  loan.  The  Marginists  did  not  add  much  to  this 
notion  except  that  they  went  somewhat  further  into  the 


DISTRIBUTION  117 

psychological  aspects  of  abstention,  showing  how  our 
attention  is  riveted  upon  the  present.  Senior's  theory  thus 
became  a  theory  of  "impatience"  or  an  agio-theory,  as 
an  Austrian  dubbed  it.  Capital  was  at  first  identified  with 
stocks  of  tangible  wealth,  including  goods  for  consump- 
tion when  used  for  pecuniary  gain.  Because  of  this  con- 
ception of  capital,  and  because  such  wealth  in  earlier  days 
was  no  doubt  literally  "saved"  as  a  reserve  contrary  to 
people's  inclination  to  enjoy  their  goods-income  at  once, 
the  doctrine  gained  currency  that  the  loan-fund  varied 
with  the  degree  of  thrift  of  consumers  or  of  the  enter- 
priser— notably  at  first  the  landlord — who  might  hire 
either  field-workers  or  butlers  at  his  option. 

It  became  evident  however,  as  improved  methods  acceler- 
ated production  and  freed  men  from  the  danger  of  a 
deficit,  that  saving  alone  could  not  explain  the  whole  of 
capital-goods,  nor  much  less  the  loan-fund  with  which 
Distribution  had  to  reckon.  Impatience-theories  could  not 
hold  themselves,  first  because  wealth  and  loan-funds  grew 
out  of  all  proportion  to  the  pain  of  foregoing  enjoyments, 
which  originally  was  (pain,  genuine)  and  secondly  because 
this  pain  anyhow  was  no  more  measurable  than  any  other 
psychic  state.  For  one  thing,  then,  the  available  stock  of 
wealth  or  of  loan-funds  would  have  to  be  the  index  of 
impatience,  thus  reversing  the  causal  order,  and  for 
another  thing  the  discrepancy  between  wealth  as  a 
means  of  acquiring  profits  or  interest,  and  the  loan- 
fund  itself,  gainsaid  the  assertions  of  the  orthodox 
Marginists. 

For  this  reason,  doubtless,  other  determinants  of  the 
supply  of  capital  were  considered.  It  was  pointed  out  that 
government  regulations  aifected  supply  because  of  a  fix- 


118  A  CRITIQUE  OF  ECONOMICS 

able  ratio  of  the  loan-fund  to  cash  reserves,  especially  for 
money-rates.  It  was  easy  to  show  that  banks  manufac- 
tured credits,  that  is  rights  to  the  use  of  values  and 
wealth,  regardless  of  stocks  of  production  goods  and  even 
of  cash-deposits  by  their  clientele.  Costs  of  operating  a 
bank  would,  to  be  sure,  influence  the  price  of  its  services, 
including  that  for  loans ;  but  business  conditions,  general 
principles  of  investment,  trade  abroad  no  less  than  at 
home,  currency  changes  and  more  particularly  gold  move- 
ments, which  varied  with  facts  not  definitely  measurable, 
these  and  other  elements  would  count  much  more.  There  is 
no  need  here  of  going  further;  for  an  explanation  of 
interest-rates  lies  beyond  the  scope  of  our  inquiry.  What 
is  important  is  the  failure  of  the  hedonistic  concept  of 
impatience  as  a  key  to  the  supply  of  capital.  Indeed,  to 
mix  risks  and  banking-costs  (expenses)  with  time-prefer- 
ence was  unfortunate  in  any  case,  because  of  the  incom- 
parable kinds  of  psychics  involved.  And  then,  of  course, 
one  might  add  incidentally  that  the  chief  suppliers  of 
capital  pretended  to  no  pain  of  abstinence.  Business- 
corporations  spoke  of  surplus  and  investment,  but  not  of 
a  longing  for  consumption;  and  banks  as  main  fountains 
of  loan-capital  would  have  stressed  nothing  more  than 
their  natural  desire  to  "make'*  as  much  as  possible.  But 
this  aim  to  earn  was  not  comparable  to  the  time-preference 
of  the  average  saver.  Nor  was  there  any  doubt  that  the 
banks  set  the  pace,  actuated  by  their  own  motives,  after 
which  industrial  or  trading  corporations  offered  funds  for 
lending  according  as  they  thought  the  prospects  for 
profits  through  enlargement  of  their  plants  better  than 
existing  interest-rates,  or  not.  And  as  for  the  multitudes 
who  provided  the  smaller  portion  of  the  loan-fund  mainly 


DISTRIBUTION  119 

through  bank-deposits,  they  also  followed  the  quotations 
of  the  professional  lender.  Roughly,  this  came  to  be  the 
rule  toward  the  end  of  the  last  century,  and  due  to  this 
alone  the  psychological  approach  proved  misleading.  As 
an  explanation  of  supply  impatience  was  but  a  makeshift, 
a  mere  reminder  of  the  indisputable  fact  that  present 
goods  are  by  many  preferred  to  future  values.  But  it 
could  not  be  a  decisive  factor. 

What  could  be  said,  then  of  the  demand  aspects  ? 

In  the  case  of  a  man  who  borrowed  directly  for  con- 
sumption the  Marginist  would  of  course  plead  again  for 
his  agio-theory.  He  would  show  why  the  borrower  needed 
the  value-fund  that  bought  for  him  consumption  goods, 
and  would  derive  from  it  the  price.  Yet  it  cannot  be 
repeated  too  often  that,  since  impatience  was  itself  im- 
measurable, the  price  would  once  more  act  as  a  barometer 
for  measuring  the  want-pressure,  just  as  the  price  of  any 
other  good  was  understood  by  Marginists  to  reflect 
psychics.  And  so  there  was  nothing  but  reasoning  in  a 
circle.  The  only  possible  use  an  impatience-theory  could 
have  was  to  show  why  interest  was  paid  at  all.  But  was 
this  any  less  obvious,  any  less  a  platitude,  than  to  say  that 
interest  was  due  to  the  scarcity  of  the  loan-fund?  Was 
it  not  a  fact  to  start  with,  rather  than  to  wind  up  with, 
that  prices  presupposed  scarcity  relative  to  want,  the 
two  being  inseparable?  Was  not  time-preference,  in  the 
case  of  a  borrower  who  wished  to  buy  consumption  goods 
for  his  personal  use  when  he  had  no  money  of  his  own,  as 
natural  as  the  craving  of  goods  by  a  man  zvith  purchasing 
power?  Surely,  the  bare  mention  of  impatience  could  not 
provide  the  materials  for  a  law.  It  would  have  been 
necessary  to  state  the  more  or  less  constant  factors  ac- 


120  A  CRITIQUE  OF  ECONOMICS 

companying   impatience,   the  laws    of   a  degree   of  im- 
patience. 

But,  since  borrowing  for  consumption  was  rare  anyhow, 
Marginism  did  not  dwell  too  long  on  it  except  where  it 
sought  to  explain  supply  of  capital.  On  the  demand  side  / 
refuge  was  taken,  as  in  the  case  of  land  and  labor,  to 
productivity.  It  was  felt  that  a  purely  subjectivistic 
analysis  did  not  suffice.  And  so  men  in  both  camps, 
whether  they  believed  in  time-preference  or  not,  followed 
the  early  hint  of  Austrian  thinkers  that  the  superior 
productiveness  of  capitalistic  enterprise  left  a  fund  out  of 
which  the  lender  could  be  paid,  and  which  the  producer 
was  perfectly  willing  to  share  with  him.  Since  capital  was 
a  means  to  an  end,  and  since  the  borrower  expected  to 
recoup  himself  by  his  sales-price,  the  proposition  was  up 
to  the  public.  Or  rather,  no,  it  was  not.  For  it  was 
argued  that  the  roundabout  process  yielded  a  surplus  of 
things,  of  goods  specifically  traceable  to  the  employment 
of  technological  agents  bought  or  hired  with  the  proceeds 
of  the  loan,  and  that  therefore  a  dividend  remained  from 
which  interest  was  taken.  This  surplus  would,  then, 
account  for  both  the  existence  of  interest,  and  also  for  its 
rate,  productivity-changes  being  followed  by  correspond- 
ing interest-rate  movements. 

Now,  this  idea  must  be  dealt  with  essentially  in  the  man- 
ner of  earlier  critics.  In  the  first  place,  namely,  techno- 
logical superiority  was  often  understood  as  a  physical 
fact,  and  that  of  course  was  a  mistake,  since  no  fixed 
quantitative  relation  between  supply  and  price  ever 
existed,  or  at  any  rate  has  not  so  far  been  established.  A 
rough  correlation  no  doubt  exists.  It  may  well  be  assumed 
that,  for  a  short  time  and  for  a  specified  group  of  goods, 


DISTRIBUTION  121 

a  sudden  lowering  of  cost,  a  marked  increase  of  stocks, 
would  yield  larger  total  values  and  incidentally  ensure  the 
producer  a  better  profit  because  of  his  new  differential 
advantage  and  the  relative  immobility  of  labor  and  capi- 
tal. Besides,  while  wealth  is  distributed  unequally,  any 
new  commodity  may  have  an  enhanced  temporary  "adven- 
titious" value,  that  is  one  not  measurable  by  sheer  utility. 
Higher  complementary  values  have  been  shown  to  emerge 
in  this  manner  and  to  permit  higher  prices  and  profits. 
Whenever  the  demand  for  goods  is  elastic,  and  capital  is 
employed  in  such  novel  ways  as  to  ensure  the  enterpriser 
an  appreciably  lower  cost,  interest-rates  may  be  raised 
since  the  borrower  has  compensations  in  the  price.  When 
technical  superiority  affords  a  differential,  and  not  the 
absolute  advantage  for  all  classes  of  producers  in  avail- 
ing themselves  of  the  indirect  method,  an  increment  of 
profits  appears,  the  anticipation  of  which  will  not  only 
make  interest  possible,  but  also  tend  toward  higher  bids 
for  the  use  of  capital  as  a  loan-fund.  Still,  rates  of 
interest  have  not  yet  been  correlated  with  differentials  of, 
technological  cost,  or  with  supplies ! 

In  the  second  place,  while  output  and  prices  for  goods 
and  hence  for  loans  might  be  compared,  it  would  often  be 
difficult  to  find  that  portion  of  the  product  which  was  due 
entirely  to  the  use  of  capital ;  that  is,  either  to  all  capital 
used,  or  to  such  fractions  as  were  considered  by  Margin- 
ists.  Since  most  goods  are  joint -products,  representing 
more  than  one  sharer,  the  old  objection  would  again  have 
weight.  Imputations  would  be  made  without  being  verifi- 
able by  precise  measurements ;  for  either  as  specific 
physical  or  as  value  productivity  the  share  of  capital 
would  be  indeterminate.     The  interdependence  of  agents 


122  A  CRITIQUE  OF  ECONOMICS 

of  production  has  usually  prevented  experiments  of  addi- 
tion and  subtraction  for  the  measurement  of  a  single 
agent's  product.  In  the  words  of  J.  S.  Mill:  Such  a 
procedure  was  doomed  to  failure  and  hence  forced  upon 
economists  a  deductive  method,  because  owing  to  a 
"composition  of  causes"  causes  and  effects  could  not  be 
so  separated  as  to  be  assigned  to  specific  conditioning 
facts.  The  events  of  the  social  world  in  this  respect  differ 
absolutely  from  those  observed  by  the  chemist,  so  that  no 
test  exists  for  showing  what  a  particular  lump  of  capita] 
has  produced  when  linked  with  other  factors  of  production. 

But  in  the  third  place,  was  not  the  productivity  theory 
subject  to  the  same  limitations  that  weakened  the  case 
for  subjectivistic  price  analysis  in  general.?  Was  it  not 
evident  that  value-productivity  regardless  of  "impatience" 
varied  with  the  price-determinants  of  goods,  where  goo(Js 
intervened,  and  that  hence  nothing  was  gained  by  the 
concept  of  productivity  unless  the  laws  of  price  had  first 
been  stated — which  we  saw  is  impossible  by  psychological 
analysis — and  unless  some  degree  of  regularity  for  the 
price  of  the  service  in  question,  as  representing  a  definite 
ratio,  could  be  proven?  What  was  the  advantage  of  inter- 
posing a  y  between  an  ^  and  a  z,  when  all  three  were 
unknown  quantities?  Was  not  the  lack  of  objective  data 
as  disastrous  to  a  hope  for  distributive  laws  as  ever?  And 
furthermore,  was  not  the  creditor  lending  capital  (rights) 
whose  value  was  predetermined  rather  than  computed  later 
according  to  its  technical  effectiveness?  So  far  as  the 
causal  aspect  of  the  matter  is  concerned,  this  might  well 
be  said,  and  was  said. 

Margins.  The  question  was  complicated  by  the  fact 
that  here,  as  in  the  statement  of  the  law  of  wages  and  rent. 


DISTRIBUTION  123 

a  margin  was  introduced  to  give  an  appearance  of  exact- 
ness to  conclusions,  and  also  at  times  one  of  ethical  import. 
The  same  psychology  that  prompted  the  Marginists  to 
speak  of  margin  il  utility  and  value  also  led  them  to 
apply  least  or  last  quantities  to  the  problem  of  distri- 
bution. As  indicated,  productivity  figured  in  the  price 
of  services,  and  not  of  commodities,  because  these  former 
were  rendered  so  frequently  in  an  impersonal  way.  Hence 
its  place  under  the  heading  of  Distribution !  The  margin 
however  was  not  peculiar  to  Distribution,  as  everybody 
knows.  It  functions  elsewhere  in  great  solemnity.  But 
since  incomes  were  prices,  nothing  else  could  be  expected 
than  an  extension  of  marginal  reckonings  over  the  whole 
field  of  value. 

But  how  many  margins  were  there  ?  It  will  repay  us  to 
tabulate  the  margins  used  in  the  three  principal  divisions 
of  economics  (see  Tables  One  and  Two).  It  will  be  seen 
that  there  was  quite  a  number,  and  that  consistency  was  a 
hard  thing  to  maintain  in  the  midst  of  so  many  standards. 
The  price-margins  for  consumption  goods  were  the  pri- 
mary ones,  so  to  say,  the  others  being  derived  from 
them  logically.  Of  course,  if  productivity  was  treated  as 
a  physical  fact — and  this  happened  often  enough — price 
margins  had  nothing  to  do  with  it.  But  strictly  taken 
productivities  should  have  been  values,  that  is  events 
sprung  from  a  psychic  fact,  namely  from  utility  or  grati- 
fication or  want — call  it  what  you  will.  The  two  views  of 
productivity  were  not  always  kept  apart,  partly  because 
of  the  Ricardian  ancestry  of  agricultural  margins,  and 
partly  because  with  respect  to  labor  and  capital  the 
difference  between  a  thing  and  a  value  was  easily  over- 
looked in  'an  argument.     But  if  margins  were  used  on 


124  A  CRITIQUE  OF  ECONOMICS 

the  orthodox  principle,  only  differential  costs  could  furnish 
a  physical  standard.  That  is,  in  fixing  prices  at  a  long- 
time view,  by  minimum  non-pecuniary  costs,  no  violence 
was  done  to  logic.  It  would  only  be  necessary  to  find  out 
whether  costs  directly  or  through  supply  do  determine 

values. 

TABLE  ONE 

CLASSIFICATION    OF     MARGINS    USED    IN     MARGINAL    ECONOMICS 

/.  Price 

1.  Margin  as  last  consumed  and  least  gratifying  part  of  a  good 

used  at  a  given  time. 

2.  Margin  as  least  wanted  good  out  of  a  stock  of  different  kinds 

of  goods. 
2a.  Margin  as  least  gratifying  kind  of  use  of  a  good  having  several 
uses. 

3.  Margin  as  marginal  value. 

4.  Margin  as  maximum  (long-run  minimum)  expense  of  production 

(costs). 

II.  Distribution 

1.  Margin  as  maximum  impatience  for  the  consumption  of  a  good. 

2.  Margin  as  least  effectively  used  dose  of  capital  (stock  or  fund). 
2a.  Margin  as  least  valuable  use  of  capital. 

3.  Margin  as  least  effectively  used  dose  of  labor. 

4.  Margin  as  least  effectively  used  dose  of  land. 
4a.  Margin  as  least  valuable  kind  of  use  of  land. 
4b.  Margin  as  worst  land  (physical  basis). 

5.  Margin  as  least  efficient  enterpriser  (dose  of  enterprise?). 

Note:  Margins  I,  l-2a,  and  II,  1  are  the  only  ones  having  a  physiological- 
hedonistic  basis. 

Comparing  the  margins  further,  it  is  seen  also  that  some 
shares  were  related  to  several  margins,  while  others  had 
each  one  margin.  All  shares  except  enterprise  had  a 
proportionality-margin ;  that  is,  when  a  margin  was  used, 
it  was  a  last  dose  of  any  one  share  relative  to  the  ajnownts 
of  other  shares.  It  was  a  question  of  ratios  of  either 
physical  or  value  agents.  But  for  land  and  labor  the 
margin  bore  on  intrinsic  differences  of  productivity  as 
well  as  on  such  productivities  as  would  depend  upon  ratios 


DISTRIBUTION 


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126  A  CRITIQUE  OF  ECONOMICS 

of  the  agents  operating  jointly.  Again:  The  units  to 
which  the  margins  referred  were  not  all  the  same.  It 
might  be  a  single  productive  act,  or  the  output  of  a  whole 
plant,  an  acre  of  ground  or  the  farm-land  of  the  entire 
country.  Whether  the  choice  of  one  or  the  other  unit 
made  a  difference  for  the  argument,  or  whether  it  was  of 
no  moment,  could  not  be  easily  inferred  from  the  actual 
use  made  of  the  marginal  concept.  And  finally,  there 
remained  the  interesting  fact  revealed  in  the  Table,  and 
long  understood  by  economists,  that  rent  and  profits 
moved  above  the  margin,  while  wages  and  interest  were 
fixed  at  the  margin.  So  this  margin  really  had  two  func- 
tions, not  one.  It  would  be  worth  while  to  show  why  the 
shares  had  to,  or  could  not,  coincide  with  marginal  pro- 
ductivity. Was  it  not  the  poverty  of  labor  and  its 
theoretical  mobility  that  made  the  least  productive  man  set 
the  pace  for  all  others?  Was  it  not  greed  that  won  in 
enterprise,  and  failed  in  workingmen?  Was  it  not  the 
convertibility  of  capital  as  a  value-fund  into  anything,  and 
its  reproducibility,  that  gave  it  a  place  at  the  margin 
when  landlords  could  go  on  exploiting  their  monopoly  or 
at  any  rate  the  unique  properties  that  Ricardo  spoke  of? 
The  intrinsically  worst  or  worst  used,  land  was  the  begin- 
ning of  rent  for  all  superior  outputs,  but  the  least 
effectively  used  capital  provided  no  surplus.  The  rate 
of  interest  was  fixed  by  the  latter,  if  we  believe  the 
productivity  economists.  And  the  enterpriser?  He  was 
his  own  boss.  He  was  a  legal  factor  like  capital  or  land, 
and  therefore  got  the  benefit  of  differential  advantages 
which  a  laborer  lost  by  being  replaceable,  within  his  class, 
by  another  fellow.  Proportionality  when  well  observed 
helped  labor  only  in  one  respect,  viz.,  by  increasing  the  na- 


)  DISTRIBUTION  127 

tional  out  lut.  But  it  gave  the  enterpriser  two  profits,  viz., 
first  in  letting  him  share  with  the  others  the  increased  na- 
tional output,  and  secondly  in  allowing  him,  within  his 
own  field  or  plant,  to  keep  the  surplus  above  maximum 
costs. 

But  apart  from  these  inconsistencies  in  the  use  of  terms 
and  arguments,  there  remains  to  be  noted  the  difference  it 
made  for  the  Marginal  analysis  whether  we  think  of 
natural  productivity  (in  things  or  values),  or  of  propor- 
tionality. That  lands  differed  in  natural  fertility,  so  that 
the  yield  of  the  better  might  be  reckoned  by  that  of  the 
worst,  was  one  thing;  but  that  two  like  acres  could  be 
put  to  such  different  uses,  through  choice  of  crops  or 
proportions  of  technical  agents,  that  one  became  marginal 
and  the  other  supra-marginal,  that  was  a  second  thing. 
The  worst  land  physically  might  not  be  marginal  if 
treated  better  technically  than  land  naturally  more  fertile, 
so  that  our  standards  for  measuring  shares  overlapped. 

And  similarly  with  respect  to  the  vmit  of  the  productive 
act  that  furnished  the  margin.  Was  it  a  single  productive 
act  such  as  the  building  of  a  house  or  the  manufacture  of 
a  pair  of  shoes?  Or  was  the  output  of  the  whole  plant 
the  unit  for  detecting  the  margin,  for  measuring  the 
values  above  it.^*  Ideas  on  the  size  of  a  market,  and  time- 
units  in  addition,  should  have  been  properly  related  to 
this  assemblage  of  margins — if  feasible.  But  neither  for 
intrinsic  nor  for  proportionality  productivity  was  this  step 
taken.  Indeed,  could  a  margin  of  any  kind  be  found  on 
the  dosing  principle?  Did  business  calculate  in  this  man- 
ner? Did  it  experiment  so  painstakingly  as  to  have  a 
fairly  accurate  record  of  relative  yields  and  imputable 
incomes  ?    It  was  granted  by  theorists  that  their  argument 


J 

128  A  CRITIQUE  OF  ECONOMICS 

involved  a  picture  for  ratiocination  rather  than^for  verifi- 
cation. And  one  is  constrained  to  accept  the*  apology. 
But  finally,  the  margin  was  useless  not  only  because  it 
presupposed  a  wrong  psychology  of  valuation,  that  is  a 
thoroughly  mistaken  idea  of  law  and  causation,  but  be- 
cause, once  more,  marginal  productivities  were  as  little 
measurable  as  absolute  productivities  of  any  one  agent 
used  jointly  with  others.  Whenever  producers  worked 
together,  whenever  by-products  were  in  question,  whenever 
values  belonged  to  the  group  of  complementaries,  the  hope 
of  finding  a  margin  of  productivity  was  a  forlorn  one. 
Hence  the  marginal  standard  could  not  do  what  hedonistic 
theories  as  such  could  not  do,  and  the  problem  of  income 
remained  unsolved. 


CHAPTER  FIVE 

PRODUCTION 

The  Place  of  Production  and  Consumption  in  Eco- 
nomics.— It  has  often  been  acknowledged  that  the  science 
of  economics  dealt  virtually  with  nothing  else  than  price 
and  distribution.  It  was  in  these  two  divisions  that  laws 
were  sought  and  formulated.  On  the  exposition  of  their 
salient  points  the  foremost  economists  spent  most  of  their 
time.  Once  price  and  income  had  been  treated  the  pre- 
tense to  exact  science  in  one  sense  vanished,  for  few 
definite  laws  of  production  or  consumption  were  ever 
elaborated.  Consumption,  to  be  sure,  gained  importance 
with  the  rise  of  collectivism  and  again  under  Marginism. 
The  Historical  School  saw  in  studies  of  consumption  a 
special  method  for  suggesting  political  remedial  measures, 
or  for  bringing  out  forcefully  the  bearing  of  thrift  on 
progress,  if  not  on  taxation.  The  socialists  favored  the 
consideration  of  consumption  as  a  logical  division  in 
economics,  the  term  being  in  all  cases  interpreted  as  a 
physical  or  psychic,  but  not  as  a  value,  fact.  Consumption 
from  Naturalism  upward  mo^nt  use  of  wealth  and  precepts 
for  conserving  natural  or  national  resources.  Only  with 
the  entry  of  Marginism  did  consumption  assume  a  psycho- 
logical meaning  which  at  the  same  time  became  an  integral 
part  of  the  price  analysis.     It  was  Jevons,  e.  g.,  who 

129 


130  A  CRITIQUE  OF  ECONOMICS 

wrote:  "Economics  must  be  founded  upon  a  full  and 
accurate  investigation  of  the  conditions  of  utility ;  and  to 
understand  this  element  we  must  necessarily  examine  the 
wants  and  desires  of  man.  We  shall  first  of  all  need  a 
theory  of  the  consumption  of  wealth."  ^  In  other  words, 
Marginists  identified  a  theory  of  valuation  with  certain 
physical  and  intellectual  aspects  of  use  and  reaction  or 
responses,  thereby  adding  to  the  old  conception  of  con- 
sumption a  new  one.  Consumption  was  held  to  mean 
valuation  mainly  with  reference  to  such  acts  of  gratifica- 
tion as  the  inward  and  outward  use  of  scarce  goods 
brought  with  it. 

However,  consumption  did  not  really  become  a  well 
recognized  portion  of  a  science  of  economics,  in  spite  of 
some  notable  attempts  in  that  direction.  The  principles  of 
valuation  were  treated  under  value  or  price,  and  that 
ended  the  matter.  If  anything  else  was  written  it  fell 
under  the  rubric:  Thrift  or  Taxation,  or  Wage-Earners' 
Budgets;  etc.  Nor  did  Production  expand  in  the  degree 
that  the  beginnings  of  economics  might  have  suggested. 
The  victory  of  Utilitarianism  robbed  the  physical,  coUec- 
tivistic  view  of  prosperity  of  its  prestige.  Thereafter 
individualistic,  entrepreneur  concepts  held  men's  attention. 
It  was  an  examination  of  price  and  shares  of  the  national 
dividend  that  fascinated  most  minds ;  and  so  the  division 
that  had  first  preoccupied  the  Naturalists  dropped  out  of 
sight.  There  was  a  good  reason  for  it,  too,  and  one  which 
is  not  hard  to  guess.  Namely,  the  trend  of  economists  was/ 
toward  a  formulation  of  exact  laws,  of  laws  built  increas-f 
ingly  on  human  nature.  And  how  could  Production 
compare  with  Value  in  this  respect  ?    The  laws  of  produc- 

>  "Theory  of  Political  Economy,"  1879,  p.  42. 


PRODUCTION  131 

tion  were  either  physical  or  they  pertained  to  values.  If 
the  former,  could  they  be  found?  If  the  latter,  was  the 
avenue  of  aproach  not  a  diagnosis  of  pricing  processes? 
The  situation  was  clear  enough. 

Production  consequently  could  not  mean  much  to  a 
science  of  economics  as  built  up  with  the  aid  of  eighteenth 
century  logicians  and  psychologists.  As  a  division  it 
remained  noteworthy  only  because  it  gave  rise  to  a  number 
of  basic  ideas  that  were  used  over  and  over  again  in  the 
analysis  of  value  or  distribution.  Since  these  fundamental 
definitions  ordinarily  found  an  initial  statement  under  the 
caption  Production,  and  since  by  this  step  the  field  of 
economics  was  more  or  less  explicitly  delimited,  and  a  road 
paved  for  the  announcement  of  economic  laws.  Production 
must  even  today  interest  the  historian  or  critic.  But 
otherwise  it  involves  no  new  problem.  That  economists 
devoted  many  chapters  to  the  description  of  an  existing 
regime,  and  thus  had  much  to  say  a  propos  of  Production, 
is  true.  The  space  assigned  to  this  division  is  ample  in 
the  larger  works.  But  one  cannot  overemphasize,  at  the 
outset,  the  fact  that  these  long  chapters  describe  merely  a 
prevailing  business  organization,  or  treat  of  practical 
questions  whose  solution  could  never  be  seriously  offered 
as  a  part  of  economic  laws.  What  is  genuine  science  in 
most  books  on  Production  fills  but  a  few  pages ;  the  rest 
consist  of  a  review  of  facts  as  facts. ^ 

On  Laws  of  Production. — One  law  of  production  was 
evolved  early  in  the  history  of  economics  and  may  be 
reviewed  before  passing  on  to  items  of  definition ;  and  that 
was  the  law  of  productivity.     There  were  in  fact  two 

*  For  a  recent  statement  on  gaps  see  Woolman,  L.,  ia  Am.  Ec.  Rev., 
March,  1921. 


132  A  CRITIQUE  OF  ECONOMICS 

distinct  laws  of  productivity  which  only  through  an  over- 
sight, or  because  of  a  certain  historical  interrelation, 
paraded  sometimes  as  one.  To  wit,  there  was  the  thought 
that,  for  example,  an  acre  of  land  would  in  the  course  of 
time  yield  less,  this  phenomenon  being  originally  called  the 
law  of  diminishing  returns ;  and  there  was  the  very 
different  notion  that  things  used  jointly  must  be  used  in 
definite  proportions  at  a  given  time  and  place,  if  the  best 
results  were  to  be  secured.  The  two  versions  not  only 
differed  appreciably,  but  should  without  exception  have 
been  kept  distinct.^ 

The  law  of  diminishing  returns  referred  of  course  to 
physical  output.  It  spoke  of  things,  and  not  of  values.  If 
a  law  of  physical  returns  was  to  extend  also  to  price  it 
could  be  only  on  the  assumption  that  a  more  or  less  fixed 
quantitative  relation  existed  between  physical  and  market 
supply  on  the  one  side,  and  price  on  the  other  side.  This 
supposition  was  common  enough,  and  had  a  foundation  in 
facts.  But  what  Malthus  and  Ricardo  and  many  of 
their  disciples  in  England,  on  the  continent  in  Europe 
or  in  America  thought  of  was  the  relative  growth  of  popu- 
lation and  of  food  supplies.  Studying  this  ratio,  the  well 
established  fact  of  soils  becoming  exhausted  (if  great  care 
was  not  taken)  assumed  a  sinister  aspect.  The  law  of 
diminishing  returns  created  a  sensation!  At  the  same 
time  it  was  of  course  also  known  that  any  plot  of  ground 
will  yield  a  limited  amount,  so  that  the  n^^eds  of  a  whole 
nation  could  not  be  supplied  from  one  acre,  no  matter 
how  diligently  one  cultivated  it.  But  this  law  of  limited 
physical  returns,  if  one  may  call  it  a  law,  had  no  purpose 

•Various  concepts  of  productivity  are  discussed  by  Liefmann,  R., 
in  Conrad's  Jahrb.,  1912,  pp.  273-327. 


PRODUCTION  133 

in  economics  beyond  helping  to  explain  the  scarcity  of 
want-satisfying  things. 

Considering  that  Utilitarianism  dealt  largely  with 
things,  as  opposed  to  value  concepts,  there  was  logic  in 
its  treatment  of  a  law  of  physically  dwindling  returns 
from  a  long-time  view.  But  when  this  law  was  understood 
to  refer  to  less  than  proportionate  increases  of  wheat 
relative  to  certain  increases  of  labor  or  capital  in  the 
working  of  the  soil,  the  thought  arose  naturally  enough 
that  perhaps  land  was  not  different  from  other  agents 
in  this  respect.  The  question  could  be,  and  was,  raised 
whether  capital  would  yield  always  in  proportion  to 
added  amounts  of  land  or  labor;  and  the  reply  was  in 
the  negative.  So,  after  a  while,  diminishing  returns  as  a 
theory  of  supply  relative  to  population  lost  prestige,  all 
four  factors  of  production  being  placed  on  a  par.  Yet 
it  should  have  been  remembered  that  since  all  goods  came 
ultimately  from  land  in  the  wider  sense,  the  declining  rate 
of  yield  of  land  had  a  deeper  significance  than  any  law 
of  the  proportionality  of  returns.  For  plainly,  rising 
returns  in  machinofacture  or  elsewhere  could  not  avail, 
if  the  farm  or  mine  continued  to  yield  less  on  account  of 
exhaustion,  or  boasted  only  of  a  stationary  output.  But 
perhaps  this  was  felt  to  be  a  dynamic  view  of  produc- 
tion that  had  no  place  in  a  generally  static  analysis  of 
values. 

As  regards  the  exact  law  of  proportions,  however,  this 
had  weaknesses  that  it  could  not  take  long  to  point  out, 
and  for  which  no  remedy  was  in  sight.  For  instance,  if 
we  accept  it  at  its  face  value,  it  was  a  statement  of  propor- 
tions of  things  necessary  to  produce  the  best  results.  The 
intimation  made  is  that  definite  amounts  of  things  have  to 


134  A  CRITIQUE  OF  ECONOMICS 

be  used  if  maximum  efficiency  is  to  be  attained.  But  when 
we  look  a  little  closer,  asking  ourselves  what  these  "things" 
are  that  must  be  used  in  fixed  proportions,  we  shall  have 
difficulty  in  defining  them.  If  productivity  was  output  of 
values,  we  may  or  may  not  assume  that  the  producing 
agents  also  represented  values.  It  need  not  follow,  though 
we  might  decide  to  that  effect.  But  regardless  of  what  was 
meant  by  the  product,  whether  things  or  dollars,  the 
factors  of  production  surely  had  to  be  either  physical 
facts  or  value  facts.  If  the  former,  there  was  no  way  of 
finding  proportions,  since  in  a  rigidly  logical  sense 
thousands  of  different  kinds  of  events  would  contribute 
toward  the  joint  result,  it  being  impossible  for  us  to  find 
even  for  a  given  moment  all  the  ratios  really  involved. 
And  of  course,  the  ratio  would  change  virtually  for  each 
act  of  production,  owing  to  a  general  law  of  change  over 
which  humans  have  no  control.  But  furthermore,  if 
physical  things  were  meant  by  proportionality,  who  could 
say  how  much  of  each  was  used,  or  should  be  used,  to 
achieve  the  best  results,  and  what  bearing  this  output  of  a 
physical  supply  had  upon  its  value? 

It  may  therefore  be  assumed  that  economists  had  in 
mind  a  principle  of  value  proportions  when  they  showed 
that  there  is  but  one  best  way  of  doing  things.  But  in 
that  case  also  the  law  was  not  as  startling  as  might  have 
appeared  at  first  sight.  For  in  the  first  place  it  remained, 
then,  to  identify  definite  amounts  of  values  with  definite 
amounts  of  things,  of  materials  or  services,  if  the  law  was 
to  assume  a  technological  significance  and  teach  anything 
for  future  ends ;  but  such  a  specification  of  things  relative 
to  their  values  was  never  attempted.  And  so  in  the  second 
place   the  law  necessitated   a   reduction   of  all  physical 


PRODUCTION  135 

factors  of  production  to  four  legal  factors,  the  relative 
amounts  of  which  could  be  varied  to  find  out  which  propor- 
tion yielded  the  largest  pecuniary  values.  From  the  entre- 
preneur's standpoint,  of  course,  a  ratio  would  then  have  to 
be  established  between  product  and  profits  to  warrant  his 
choosing  a  particular  proportion;  for  it  was  net  profits 
that  interested  him,  not  merely  sales.  And  how  could  this 
relation  be  made  part  of  the  proportionality  argument? 
But  again,  values  of  management  and  labor  could  not  be 
compared  with  those  of  capital  or  land ;  nor  could  profits 
be  regarded  as  causally  derived  from  such  proportions  of 
values,  since  these  in  part  presupposed  a  profit.  Nor  was 
there  any  way  of  tracing  particular  dollars  of  any  one 
agent  to  particular  physical  supplies  turned  out,  or  of 
distinguishing  nicely  between  dollars  of  labor  and  those  of 
interest  on  capital. 

The  whole  theorem  therefore  proved  delusive.  For 
all  economists  it  meant  that  on  two  counts  the  only  law 
deemed  important  in  Production  had  proven  worthless, 
viz.,  first  because  it  established  neither  constant  physical 
nor  value  ratios  of  specifiable  elements  of  production,  and 
secondly  because  it  treated  of  elements  that  orthodox 
price  and  income  students  did  not  know  by  name,  since 
they  recognized  only  four  legal  factors.  Thus  we  have 
on  the  one  hand  the  familiar  fact  that  a  producer,  by 
violating  the  law  of  physical  proportions,  could  reduce 
supply  and  frequently  swell  his  profits ;  and  on  the  other 
the  startling  fact  that  if  stable  quantitative  relations  for 
highest  efficiency  were  discoverable,  they  could  mean  noth- 
ing for  a  theory  of  distribution;  and  this  in  spite  of  a 
"productivity-theory"  among  Marginists. 

On  Definitions  in  Production. — Let  us  pass  over  now  to 


136  A  CRITIQUE  OF  ECONOMICS 

some  basic  terms  that  were  usually  stated  preliminary  to 
a  discussion  of  production.     (See  Table  III.) 

Beginning  with  J.  B.  Say,  the  French  popularizer 
of  Adam  Smith,  definitions  made  up  a  notable  part  of 
economic  science.  More  and  more  the  drift  was  toward 
precision  and  logical  interrelation.  Agreement  was  by  no 
means  easily  reached,  nor  permanent  on  all  leading  ideas ; 
but  none  the  less  unanimity  was  attained  more  nearly  on 
definitions  than  on  laws  of  applications.  The  chief  defini- 
tions sprang  directly  or  indirectly  from  psychological  and 
legal  premises,  or  from  ideas  of  law  and  social  causation 
that  will  soon  engage  our  attention.  They  reflected  the 
longing  for  systematization,  but  they  also  brought  in  their 
wake  certain  anomalies  that  have  elicited  much  good- 
natured  ridicule  on  the  part  of  critics. 

Before  production  could  be  de^ed,  or  at  least  im- 
mediately after  defining  it,  a  few  other  terms  needed  to  be 
known,  and  so  bounds  had  to  be  set  to  economics  from  the 
start.  Utility,  it  was  decided,  was  anything  capable  of 
gratifying  any  want.  It  did  not  matter  what  the  hygienic 
or  moral  or  political  consequences  of  an  act  of  satisfac- 
tion, if  this  latter  depended  on  the  use  of  a  certain  thing, 
this  thing  was  a  utility,  or  was  useful.  This  was  a  com- 
monplace that,  on  the  whole,  found  speedy  acceptance. 
If,  however,  it  was  asked  whether  any  utility  constituted  a 
value,  or  whether  the  creation  of  any  utility  was  a  produc- 
tive act,  two  different  answers  were  given.  To  some  it 
seemed  that  utilities  had  to  be  scarce  in  order  to  become 
"economic,'^  while  others  granted  the  significance  of  scar- 
city for  economic  studies,  but  did  not  absolutely  insist  on  it 
as  a  prerequisite  in  production.  The  great  majority 
leaned  toward  inclusion  of  scarcity,  defining  it  as  insuffi- 


PRODUCTION 


137 


TABLE  THREE 

LOGICAL    ORDER    FOR    BASIC    COKCEPTS    OF    ECONOMICS    AS    A    SCIENCE 


Production 

Consumption 

Price 

Distribution 

Want 

Utility 

Use 

(Absolute)  Value 

Scarcity 

Transferability 

(Exchange)  Value 

National  Dividend 

Good  (Value) 

Money 

Wealth 

Prodibction 

Consumption 

Price 

Distrilktion 

Factor  (Agent) 

Share 

Land 

Rent 

Labor 

Wages 

^     ..  1  (  Goods 

Capital  I  p^j^^  Savings  Interest 

Enterprise  Profits 

Rates  of  Return  Utility,  Degrees  of    (^E^Venses)  {  pfll^g  (^E^^^^ 


Complementary 
Utilities 


Supply 
Demand 


Capitalization 


Supply 
Demand 

Impatience 


Productivity 
(Standard  of  Living) 


Notes.  1.  Premises  are:  Private  property,  freedom  of  contract,  of  vocation, 
and  of  residence  (i.e.,  a  competitive  regime). 

2.  For  Marginal  economics  add  the  concept  of  margins  of  several  kinds  (see 
Tables  One  and  Two). 


138  A  CRITIQUE  OF  ECONOMICS 

ciency  relative  to  demand  at  some  price.  Anything  so 
abundant  as  to  be  had  for  the  asking  would  not  entail 
effort  on  the  part  of  man.  Nobody  would  give  anything 
for  it,  and  so  it  could  not  enter  the  markets.  Since,  then, 
neither  effort  nor  exchange  nor  price  would  connect  with 
"free"  goods,  they  did  not  concern  the  student  of 
economics.  What  was  wanted  was  a  thorough  comprehen- 
sion of  price  and  income  facts.  These  held  out  the  greatest 
promises  to  a  believer  in  social  laws.  And  so  insufficiency 
of  supply  became  a  natural  attribute  of  things  economic. 

But  it  was  not  done  with  these  two  conditions.  For 
human  laws  plainly  affected  economic  organization  and 
processes.  The  legal  facts  had  even  in  the  eighteenth 
century  provided  premises  for  economic  investigators; 
and  so  it  came  about  that  legality,  too,  figured  as  a  quality 
of  value.  If  governments  prohibited  trade  in  a  scarce 
utility,  that  made  it  theoretically  non-economic.  Trans- 
ferability was  as  necessary  a  condition  as  usefulness  or 
scarcity.  In  other  words,  to  have  value,  a  utility  had  to 
be  both  scarce  and  transferable;  but  having  these  two 
attributes  it  became  a  "good."  It  became  valuable,  or  had 
value ;  and  the  creation  of  values  was  a  productive  act  or 
more  briefly.  Production. 

An  article  might,  then,  be  transferable  so  far  as  the 
law  had  anything  to  say,  but  if  not  regularly  in  the 
market  it  was  not  an  economic  good.  Neither  were  illegiti- 
mately exchanged  articles  economic  in  the  strict  sense,  nor 
things  vital  to  life  or  welfare,  if  too  plentiful  as  a  rule  to 
fetch  a  price.  On  the  other  hand,  values  could  come  into 
existence  without  any  effort  by  men,  for  if  they  were 
wanted,  scarce,  and  legally  exchangeable,  like  diamonds 
found  accidentally,  or  appreciations  of  ground  held  by 


PRODUCTION  139 

speculators,  this  fact  itself  made  them  goods  and  an  object 
of  economic  study.  It  was  not  labor  that  decided  the  case, 
as  was  shown  from  the  inception  of  the  science,  but  want 
(respectively  demand)  for  goods  at  a  price. 

Private  property  and  an  individualistic  viewpoint  were 
responsible  for  these  definitions.  Wealth  by  common 
consent  was  an  individualistic  concept,  although  opinions 
as  to  its  exact  meaning  differed.  One  writer  said  that 
v^realth  "consisted"  of  all  potentiaUy  exchangable  means  of 
satisfying  human  needs";  another  meant  by  it  the 
"sources  of  human  welfare  which  are  Tnaterial,  transfer- 
able, and  limited  in  quantity" ;  ^  a  third  one  thought  it 
consisted  of  "material  objects  owned  by  human  beings"; 
while  Mill  in  his  "Principles  of  Political  Economy"  main- 
tained :  "Everything  forms  a  part  of  wealth  which  has  a 
power  of  purchasing ;  for  which  anything  useful  or  agree- 
able would  be  given  in  exchange".^  Thus  a  variety  of 
interpretations  might  easily  be  hunted  up;  but  predomi- 
natingly wealth  signified  scarce,  useful,  transferable 
things,  that  is  a  fund  of  values  rather  than  of  utilities 
irrespective  of  their  scarcity.  But  of  course,  since  value 
was  not  necessarily  a  tangible  utility,  and'  since  each  per- 
son was  his  own  judge  as  to  what  he  wanted,  values  might 
pile  up  without  benefit  to  the  larger  social  group,  without 
taking  such  form  as  the  majority  could  perhaps  wish. 
Thus  a  practical  defect  of  the  definition  of  production 
was  its  indifference  to  classes  of  concrete  or  inconcrete 
goods,  to  their  ratios,  and  to  a  standard  of  value  that 
might  have  made  the  sum  of  individual  fortunes  equal  to 
the  wealth  of  the  nation.    By  degrees  goods  were  classified 

*  Keynes,  J.  N.,  Scope  and  Method  of  Political  Economy,  1896, 
p.  92. 
°  Preliminary  Remarks. 


140  A  CRITIQUE  OF  ECONOMICS 

variously,  to  serve  new  purposes;  but  that  only  empha- 
sized the  error  of  defining  production  as  a  creation  of 
values.  Thus  goods  were  divided  into  reproducibles  and 
non-reproducibles,  into  publicly  or  privately  owned  goods, 
into  tangible  (form)  or  intangible  (time,  place,  and 
rights)  values,  into  land  and  non-land  wealth,  into  capital 
and  consumption  goods  (capital  embracing  however  three 
distinct  categories,  as  already  shown),  into  goods  ad- 
mitting of  one  use  and  durable  goods ;  etc.,  etc. 

Of  recent  years  these  classifications  have  won  popularity 
and  been  put  to  excellent  uses;  but  they  could  not  offset 
the  acquisitive,  hedonistic  foundation  of  the  main  defini- 
tions. Economics  had  developed  into  a  science  by  dealing 
exclusively  with  exchange-facts,  and  this  ideal  was  never 
abandoned  by  the  bulk  of  economists.  If  the  question 
came  up :  What  is  "economic?"  they  said  perhaps :  Data 
relating  to  men's  activities  in  earning  a  living.  But  this 
was  not  true  to  their  analysis  of  price :  nor  would  it  have 
permitted  the  definition  of  wealth  as  a  fund  of  values. 
Neither  free  foods  nor  facts  outside  of  exchange  were  in- 
cluded in  the  answer.  What  actuated  economists  most  of 
all  was  the  desire  to  reduce  the  manifold  of  economic  life 
to  uniformities  and  regularities,  and  to  do  this  the  psy- 
chology of  sensationalism  was  invoked.  Laws  of  associa- 
tion furnished  the  grounds  for  an  "economic  man". 
Through  this  abstraction  a  self-sufficient  exchange-mech- 
anism was  constructed  within  which  real  laws  should 
obtain,  explaining  adequately  all  wealth-data.  This  was 
the  program  adhered  to  by  all  groups  except  Historians 
and  socialists.  Because  of  these  premises  economics  re- 
mained in  so  large  a  part  a  tissue  of  postulates  and  cir- 
cular reasoning. 


PART  TWO 

A  CRITIQUE  OF  ECONOMIC 
METHODOLOGY 


A  RESTATEMENT  OF  THE  PROBLEM 

So  far  our  concern  has  been  with  doctrinal  economics, 
that  is,  with  the  main  body  of  economic  teachings  and 
with  the  psychological  premises  underlying  them.  It  has 
been  shown  that  sensationalism  is  an  untenable  theory 
of  valuation — something  conceded  by  all.  Furthermore, 
there  can  be  no  doubt  that  psychic  states,  strictly  speak- 
ing, are  always  immeasurable,  and  thus  preclude  the  use  of 
psychology  for  measurements  as  exact  as  those  that  Utili- 
tarianism or  Marginism  laid  claim  to.  In  short,  not  only 
did  margins  as  a  technical  aid  prove  inadequate,  but  in 
addition  the  groundwork  of  orthodox  economics  gradually 
crumbled  because  of  changes  in  sciences  basic  to  the  old 
discipline  of  catallactics.  Price,  income,  and  produc- 
-tivity  laws  are  not  what  they  seem  to  be.  Real  quantita-| 
tive  laws  have  not  been  found  in  those  divisions  of  eco- 
nomics, although  as  a  qualitative  analysis  sensationalism 
rendered  excellent  service  as  long  as  psychologists  them- 
selves could  offer  nothing  better. 

But  the  question  now  is :  If  a  new  principle  of  valua- 
tion, and  in  part  even  of  human  motivation,  must  be  found, 
what  becomes  of  statics  and  catallactics  as  principal  fea-? 
tures  of  the  conventional  economics?  Is  it  possible  to 
retain  these  ideas  and  terms,  if  the  key  to  valuation,  to 
income  and  economic  history,  must  be  sought  in  facts  en- 
tirely at  variance  with  those  expounded  by  eighteenth 
century  philosophers?     Supposing  we  desire  to  continue 

143 


144  A  CRITIQUE  OF  ECONOMICS 

our  economic  researches  for  laws,  must  we  not  discard  \ 
more  than  our  old  psychology,  and  will  not  many  questions 
arise  that  are  not  directly  economic  ? 

In  other  words,  with  the  abandonment  of  certain  funda- 
mental premises  of  orthodox  economics  we  are  forced  also 
to  face  anew  the  query  whether  economics  is  a  science  as 
pictured,  whether  it  may  continue  to  be  treated  as  a 
science  providing  generalizations  comparable  with  those 
of  physicists,  whose  labors  were  originally  the  inspiration 
of  Quesnay  and  Smith.  A  methodological  problem  is  in-) 
volved  because  of  the  nature  of  our  subject,  and  because 
the  accepted  methodology  of  the  first  formulators  of  catal- 
lactics  has  likewise  suffered  from  changes  in  allied  fields. 

We  may  ask  thus :  If  psychic  quantities  could  not  i 
furnish  the  degree  of  empirical  exactness  once  hoped  for, 
shall  we  give  up  this  type  of  research  entirely,  or  is  there 
another  way  of  relating  economic  events  quantitatively? 
Is  our  conception  of  a  law  to  remain  what  logicians  have 
until  recently  preferred  it  to  be,  or  may  we  draw  a  com- 
parison between  physical  "exact'*  law  and  others  in  such 
a  way  as  to  prove  continuity  between,  say,  physics  and 
economics?  What  is  the  difference  between  law  and  cor-  «' 
relations  of  the  statistical  sort?  How  far  may  laws  be 
arrived  at  deductively,  conformable  to  principles  de- 
scribed by  Formal  Logic?  Are  physical  events  causally 
related  in  a  sense  that  the  socio-economic  are  not?  Is 
causation  something  distinct  from  either  law  or  correla- 
tion? Can  we  properly  impute  to  particular  events  or 
groups  of  events  a  value  that  economists  may  use  for 
distributive  theories,  or  when  bent  on  a  moral  errand? 
What  is  to  be  said  in  favor  of  a  social  science  that  agrees 
with  our  present-day  information  on  human  nature,  on 


A  RESTATEMENT  OF  THE  PROBLEM    145 

the  limits  of  inference,  on  the  essence  of  knowledge  and 
truth-finding? 

Approached  from  this  angle  the  defects  of  the  Utili- 
tarian-Marginal teachings  become  much  more  significant 
than  appears  at  first  sight,  thus  leading  up  to  questions 
of  method  that  are  far  from  incidental  in  an  appraisal 
of  the  outlook  for  economics.  What  must  be  examined 
evidently  is  the  inward  nature  of  deduction  as  used  by 
scientists,  the  relation  between  deduction  and  induction 
in  a  formal  analysis,  and  the  possibility  of  arriving  at 
any  economic  laws  by  a  method  purely  deductive.  It  is 
a  case  for  the  methodologist  as  well  as  for  the  student 
of  pricing  processes.  The  relative  merits  of  deduction  and 
statistics  are  at  stake  on  the  one  hand,  and  those  of  ex- 
perimental versus  statistical  induction  on  the  other  hand. 
All  in  all,  a  wide  survey  must  be  made  that  goes  far  beyond 
the  bounds  of  any  one  science.  If  sensationalism  is  wrong,  • 
points  in  orthodox  logic  also  need  correcting.  If  statics  u 
and  catallactics  are  shown  to  disagree  with  our  newer 
thoughts  on  human  nature,  on  social  processes,  and  on 
the  laws  imbedded  in  them,  then  new  light  may  also  be 
needed  for  defining  the  scope  of  economics,  for  discover- 
ing the  general  principles  governing  a  delimitation  of 
sciences,  for  tracing  the  right  relation  of  economics  to 
ethics,  and  of  economics  as  a  science  to  applications 
thereof  by  politicians  or  theorists  of  diverse  tempers. 
Whether  economics  is  a  science  we  may  not  consider  an 
important  question  in  the  end,  but  that  new  topics  deserve 
our  attention,  that  methods  and  ideals  will  call  for  recog- 
nition which  earlier  economists  ignored,  this  change  must 
assuredly  excite  our  interest. 

A  critique  of  scope  and  method  is  therefore  an  integral  ^ 


146  A  CRITIQUE  OF  ECONOMICS 

^part  of  our  work,  especially  after  the  old  foundations 
have  been  pronounced  unreliable.  We  must  become 
methodologists  before  gaining  new  strength  as  economists/ 
In  methodology  we  unite  the  interests  of  logic,  epistemol- 
ogy,  and  psychology.  We  turn  to  the  facts  of  psychology 
for  an  insight  into  the  ultimate  questions  of  knowledge, 
but  we  must  also  link  it  with  logic  and  scientific  method. 
The  methods  of  science  in  general  have  special  applica-'^ 
tions  for  any  one  science,  and  the  analysis  of  law  and 
causation  in  general  bears  closely  upon  our  view  of  truth 
in  sociology  or  economics.  As  methodologists,  in  fine,  we 
gather  materials  scientific  and  ultra-scientific  or  meta- 
physical. Yet  this  does  not  prevent  us  from  keeping  our 
eye  steadily  upon  the  main  economic  problem,  nor  from 
proceeding  empirically  at  all  turns.  Methodology  is 
always  a  natural  terminal  in  scientific  investigations,  but 
particularly  so  now  that  we  are  confronted  with  new 
aspects,  with  data  different  from  those  that  guided 
logicians  a  century  ago. 


CHAPTER  SIX 
INFERENCE 

Deduction. — The  subject  of  inference  has  been  for 
many  years  studied  under  two  headings,  viz.,  first  as 
deduction  and  secondly  as  induction.  It  was  understood 
from  the  start  that  deductive  reasoning  is  in  a  class  by 
itself,  but  eventually  thinkers  also  came  to  a  realization 
of  the  importance  of  induction,  and  of  its  peculiarities 
which  deserve  serious  consideration  no  less  than  the  syllo- 
gism. Indeed,  for  purposes  of  social  science  it  can  hardly 
be  stressed  too  much  that  the  major  question  is  not 
whether  deduction  and  induction  represent  opposite  types 
of  thinking — although  this  has  often  been  said  and  made 
a  center  of  discussions — ^but  rather  what  the  difference 
of  materials  is  that  these  two  forms  of  inference  work  with, 
and  to  what  extent  conclusions^  from  chosen  premises  may 
claim  a  superiority  over  the  generalizations  gained  by 
induction.  Certainly  it  is  agreed  that  deduction  is  by  no 
means  the  whole  of  the  process  by  which  men  arrive  at 
worth-while  knowledge,  nor  need  the  methodologist  busy 
himself  with  the  many  problems  involved  in  formal  deduc- 
tion except  in  so  far  as  they  throw  light  upon  their  rela- 
tion to  scientific  methods.  For  our  present  needs  there- 
fore the  best  plan  is,  first  to  point  out  once  more  the 
salient  features  of  formal  deduction,  secondly  to  contrast 
with  them  the  broader  demands  of  scientific  induction,  and 
third  to  add  a  few  words  on  the  ultimate  postulate  under- 

147 


148  A  CRITIQUE  OF  ECONOMICS 

lying  induction,  not  to  cast  doubt  upon  the  validity  of 
scientific  conclusions  known  as  law  or  causation,  but  to 
prepare  indirectly  the  way  for  a  close  examination  of  the 
relative  merits  of  inductions  by  natural  and  social  sci- 
ences. In  reality  inference  and  law  or  causation  are  inex- 
tricably interwoven.  There  is  scarcely  an  excuse  for 
sundering  them.  But  since  method,  and  notably  the 
process  of  reasoning,  is  after  all  distinct  from  its  subject- 
matter  and  final  results,  a  consideration  of  each  by  itself 
is  justifiable. 

As  to  deduction  then:  If  we  take  the  old  syllogism 
about  Socrates  as  a  most  important  type,  we  find  that 
everything  depends  upon  a  proper  statement  of  relations 
between  universals  and  classes.  It  is  with  concepts,  with 
axioms  and  degrees  of  inclusiveness  that  formal  logic 
builds.  Laws  of  Thought  are :  A  is  not  not-^ ;  everything 
is  either  A  or  not-^;  and  A  is  A.  With  the  aid  of  these 
and  possibly  a  few  other  postulates  such  as  that  an 
assertion  is  either  false  or  true,  and  that  some  proposi- 
tions may  be  recognized  as  true,  logicians  have  constructed 
their  moods  and  figures  of  a  categorical  or  disjunctive 
or  hypothetical  syllogism.  In  the  premises  appear  a 
generalization  and  a  particular  instance,  and  in  the  con- 
clusion the  particular  is  connected  with  a  universal  ac- 
cording to  fixed  rules. 

If  we  say,  thus,  that  all  men  are  mortal,  and  that 
Socrates  is  a  man,  we  must  infer  that  Socrates  also  is 
mortal.  It  is  the  definition  of  a  syllogism  that,  two 
propositions  being  given,  a  third  must  necessarily  follow. 
The  relation  of  the  particular  to  the  universal  is  brought 
out  in  this  manner.  Terms  and  definitions  are  important 
in  that  either  we  are  dealing  with  one  attribute  only,  such 


INFERENCE  149 

as  mortal,  and  equate  it  with  "all  men,"  or  else  make 
the  more  inclusive  term  contain  the  less  inclusive.  That  is, 
either  we  say :  All  man  =  mortal,  Socrates  =  a  man, 
therefore  Socrates  =  mortal ;  or  we  make  "all  men"  a 
part  of  "mortal,"  and  Socrates  a  part  of  "all  men."  It 
then  follows  from  the  axiom  "a  part  of  a  part  is  a  part 
of  the  whole"  that  Socrates  must  die.  But  we  might  also 
find  our  justification  for  the  conclusion  in  the  other  axiom 
that  A  being  equal  to  B,  and  B  equal  to  C,  A  must  likewise 
be  equal  to  C.  So  far  as  syllogism  is  concerned,  this  is 
the  basis  of  its  validity.  As  long  as  the  human  mind  re- 
mains constituted  as  it  is  to-day,  conclusions  may  be 
drawn  from  antecedents  according  to  definite  procedures 
known  to  Formal  Logic.  The  terms  need  ^ot  represent 
any  meaning,  nor  refer  to  facts  of  the  outside  world.  It 
is  a  mechanism  of  classes  that  we  are  dealing  with,  a  jux- 
taposition of  magnitudes  in  a  certain  order.  Whether 
we  construct  the  syllogism  for  the  first  time,  and  thus 
arrive  at  a  novel  impression,  or  repeat  the  performance 
for  the  millionth  time,  the  results  will  always  be  the  same, 
and  the  proofs  as  good  the  last  time  as  the  first.  "Dis- 
covery is  an  accident,  and  not  an  essential  of  inference" ;  ^ 
and  "deduction  is  nothing  more  than  inference  from  pos- 
tulates, whose  truth  or  falsity  is  immaterial  to  the  argu- 
ment." 2 

It  should  not  surprise  us,  however,  if  in  view  of  this 
abstraction  essential  to  syllogistics  men  have  asked 
whether  discoveries  can  be  made  thereby,  or  whether  not 
all  formal  deduction  involves  a  real,  albeit  adroitly 
veiled,  begging  of  the  question?     This  criticism  certainly 

*Bosanquet,  B.,  "Logic,"  1888,  vol.  II,  p.  8. 

'Mercier,  Ch.,  "A  New  Logic,"  p.  404.  See  also  Lewis,  C.  I., 
"Survey  of  Symbolic  Logic,"  1918,  pp.  359-60. 


150  A  CRITIQUE  OF  ECONOMICS 

gained  momentum  with  the  Renaissance  in  Europe  and 
eventually  led  to  the  study  of  scientific  methods  which 
now  are  part  and  parcel  of  an  inductive  logic.  The  con- 
viction grew  that  deduction  is  not  the  fruitful  source  of 
information  that  it  was  heralded  to  be.  Instead  men  came 
to  believe — to  quote  a  passage  representative  of  others  of 
a  similar  tenor — that  "inference  is  over  when  the  premises 
have  been  brought  together,"  ^  it  being  "the  peculiarity  of 
the  syllogism  that  the  conclusion  does  not  advance  beyond 
the  premises  .  .  ."  ^  Increasingly  then  logicians  have 
stressed  the  difference  between  syllogistic  premises  and 
those  serving  us  in  everyday  life  or  in  the  pursuit  of  a 
systematized  body  of  knowledge.  The  question  has  been 
persistently  put:  How  do  we  get  hold  of  our  universals 
in  formal  logic?  What  entitles  us  to  construct  an  equa- 
tion out  of  predicates  if  they  are  not  simply  abstract  mag- 
nitudes or  entities-in-order,  but  meaningful  facts  gathered 
as  part  of  our  life's  experiences?  Or  to  apply  the  prob- 
lem to  the  proposition  about  Socrates,  why  do  we  assume 
that  all  men  are  mortal  and  that  Socrates  is  a  man?  How 
do  we  know  this?  What  rational  grounds  have  we  for 
the  assertion? 

Psychology  of  Induction. — Now  so  far  as  we  are  willing 
to  discuss  this  matter  in  terms  of  psychology  at  all,^^  we 

•Schiller,  F.  C.  S.,  "Formal  Logic,"  1912,  p.  208. 

*Bain,  A.,  "Logic,  Deductive  and  Inductive,"  edit,  of  1874,  p. 
207.  See  also  Jevons,  W.  S.,  "Principles  of  Science,"  3.  edit.,  p.  219. 
For  a  later  critical  discussion  see  Joseph,  H.  W.  B.,  "Introduction 
to  Logic,"  1916,  chs.  14,  17-8. 

**  For  literature  on  relation  of  psychology  to  logic  see,  among 
others,  the  following:  Husserl,  E.,  "Logische  Untersuchungen," 
1900,  pp.  50-227,  where  a  transcendental  logic  is  defended  on  broad, 
Hegelian  lines.  For  relation  of  logic  to  scientific  method  see  ibidem, 
Part  I,  p.  23  ff. ;  Nelson,  L.,  "Ueber  das  Sogenannte  Erkenntnis- 
problem,"  1908,  in  criticism  of  epistemology  in  general;  Hegel, 
G.  W.  F.,  "Logic"   (translated  by  Wallace,  W.,  1912),  vol.  II,  p.  30, 


INFERENCE  151 

can  never  hope  to  improve  much  on  the  diagnosis  sub- 
mitted by  David  Hume  in  the  second  quarter  of  the  eight- 
eenth century.  It  must  always  redound  to  the  glory  of 
this  searching  skeptic  that  he  was  the  first  to  elucidate  • 
the  processes  of  induction  to  mankind,  laying  down  a  few 
basic  principles  that  will  have  our  approval  as  long  as 
human  nature  remains  what  it  is.  Hume  to  be  sure  was 
mainly  interested  in  an  old  problem  of  causation  and  of 
the  limits  of  our  knowledge,  and  so  went  farther  in  his  dis- 
illusioning exposition  than  we  now  hold  necessary.  Kant 
was  not  satisfied  that  man  was  as  impotent  as  his  prede- 
cessor had  seemed  to  prove,  nor  has  the  world  since  then 
failed  to  appreciate  the  positive  elements  of  science,  the 
fundamental  sense  in  which  events  are  real  and  our  ac- 
tions progressively  rational.  Hume  therefore  should  not 
be  read  as  the  final  authority  on  reasoning,  for  this  was 
not  even  his  principal  theme.  But  there  is  room  for  a 
psychological  interpretation  of  logic,  and  notably  of  in- 
duction. 

If  then  we  ask  why  we  believe  that  all  men  are  mortal, 
disregarding  for  the  moment  the  logical  validity  of  our 
beliefs,  the  answer  will  be  pretty  much  what  the  Scotch 
philosopher  himself  pointed  out,  although  in  details  we 
may  differ  from  him.     We  have  to  admit,  in  short,  that 

etc.;  Gibson,  W.  R.  B.,  "Problem  of  Logic,"  1908,  p.  104;  Enriques, 
F.,  "Problems  of  Science"  (translated  by  Mrs.  K.  Royce,  1914), 
pp.  47,  108,  121.  The  psychological  basis  or  aspects  of  logic  are 
emphasized  by  the  following:  Mill,  J.  S.,  "Logic,"  1843;  Pillsbury, 
W.  B.,  "Psychology  of  Reasoning,"  1910;  Dewey,  J.,  "How  "We 
Think,"  1910;  Schiller,  F.  C.  S.,  "Formal  Logic,"  1912;  James,  W., 
"Principles  of  Psychology";  Goddard,  H.  H.,  "Psychology  of  the 
Normal  and  Abnormal,"  1919,  pp.  185-87;  Jastrow,  J.,  "Psychology 
of  Conviction,"  1918,  Preface;  Messer,  A.,  "Empfindung  mid 
Denken,"  1908,  pp.  151-83;  Ward,  Jas.,  "Psychological  Principles," 
1920,  p.  348  et  seq.  See  also  Lipps,  Wundt,  Sigwart,  Meinong, 
Hofler,  and  other  psychologists  or  logicians. 


152  A  CRITIQUE  OF  ECONOMICS 

men  are  so  constituted  mentally  as  to  be  impressed  with 
repetitions  of  events  in  part  or  in  toto.  Repetition  al- 
most literally  turns  out  to  be  a  source  of  truth,  the  past 
serving  as  a  guide  to  the  needs  of  the  future.  Recurrences 
and  their  similarities  urge  us  to  accept  them  as  ways  of 
nature,  as  bases  for  prediction,  even  though  we  are  aware 
of  the  risks  involved.  What  is  more,  we  are  able  to-day 
to  go  beyond  what  Hume  called  the  force  of  Custom,  since 
physiologists  have  acquainted  us  with  the  neural  mechan- 
ism through  which  excitations  are  guided  and  intercon- 
nected so  as  to  ensure  the  right  sort  of  responses  in 
thought  or  deed.  We  need  not  take  this  picture  of  the 
neurologist  too  seriously,  of  course,  for  not  even  the  essen- 
tials have  been  definitely  verified ;  nor  must  we  forget  the 
contributions  of  other  investigators  in  the  field  who  would 
interpret  consciousness  as  a  phase  of  metabolism  in  all  its 
diverse  manifestations.  However,  as  part  of  a  psychology 
of  inference  the  following  facts  deserve  attention. 

Thus  we  know  that  the  neurons  which  are  the  ultimate 
vital  units  of  our  nervous  system,  possess  among  other 
properties  those  of  conductivity,  plasticity,  and  retentive- 
ness  in  a  high  degree.  They  are  so  interconnected  as 
to  permit  a  recording  of,  and  a  response  to,  excitations 
either  directly,  as  in  the  reflex-arc,  or  indirectly  with  the 
aid  of  the  lower  or  higher  brain  centers.  In  these  three 
planes  our  adjustment  processes  move,  and  as  we  progress 
from  animal  to  human  life  the  by-product  of  reaction  takes 
more  and  more  the  form  of  an  artificial  environment,  whose 
role  gains  steadily  on  that  of  the  physical  environment. 

Nerve-paths  are  partly  set  at  birth,  but  partly  also  laid 
down  during  our  lifetime.  With  the  help  of  associative 
neural  units  and  the  areas  of  connection  distinguishable 


INFERENCE  153 

in  the  cortex  a  multiplicity  of  paths  and  responses  is 
assured.  One  stimulus  may  end  in  several  reactions,  and 
one  reaction  may  wait  on  several  stimulations.  Innumer- 
able ramifications  are  being  built  up,  which  obedient  to 
laws  of  selection,  inhibition,  and  association,  provide 
eventually  a  ready  apparatus  for  meeting  the  exigencies 
of  daily  life.  The  learning  process  being  one  of  adapta- 
tion to  immediate  and  mediate  surroundings,  and  memory 
being  ever  creative  in  the  molding  of  our  perceptions  and 
ideas,  man  appears  as  the  most  rational  of  beings,  who 
dwarfs  his  heritage  of  instincts  by  the  enormous  cumula- 
tions of  knowledge  acquired  postnatally. 

But  to  follow  up  our  argument.  The  resistance  exist- 
ing at  birth  at  the  points  of  contact  of  the  neurons  is 
gradually  broken  down,  so  that  our  responses  to  stimuli 
become  easier  in  proportion  as  they  repeat  themselves. 
Successive  adjustments  gain  in  accuracy  and  completeness. 
Practice  makes  perfect,  and  habits  arise  as  a  "fixed  form 
of  reaction."  We  get  used  to  things,  and  attune  ourselves, 
so  to  say,  to  the  prevailing  pitch  of  experiences.  Thus,  as 
we  learn  to  respond  and  be  ready  at  short  notice,  we  also 
cultivate  unwittingly  a  mood  of  expectation  with  regard  to 
events  that  do  not  demand  direct  response.  The  oftener 
an  event  recurs,  and  the  more  regular  its  outward  make- 
up, the  more  likely  we  are  (barring  counter-irritants  that 
"inhibit")  to  look  forward  to  a  further  repetition  of  such 
events.  A  belief  is  engendered  in  us  that  such  experiences 
will  be  met  with  again.  We  count  on  them  whether  liking 
or  disliking  them.  We  anticipate  them,  even  though  oc- 
casionally fooled.  We  expect  events  to  recur,  basing  our 
faith  on  nothing  but  the  great  number  of  happenings  in 
the  past.    Thus  faith  is  born  and  bred  in  us ;  thus  beliefs 


154  A  CRITIQUE  OF  ECONOMICS 

spring  up  not  merely  as  regards  common  places,  but  nota- 
bly too  with  respect  to  recurrences  that  have  always  been 
purely  mental,  given  to  us  by  our  elders  as  a  part  of  our 
social  heredity.  Thus  reason  has  little  to  do  with  our  ex- 
pectations, and  habit  everything.  "So  far  as  empirical 
science  can  tell  us  anything  about  the  matter,  most  of  the 
proximate  causes  of  belief,  and  all  its  ultimate  causes, 
are  non-rational  in  their  character."  ^ 

What  is  more,  it  should  be  emphasized  that  the  force 
of  enumeration  or  repetition  applies  to  groups  of  events 
fully  as  much  as  to  individual  ones ;  or  to  state  the  matter 
more  precisely,  we  are  led  to  believe  the  recurrence  of 
groups  of  events  even  when  only  part  of  the  group  recurs 
at  the  moment  of  our  speculation.  All  experience  comes 
to  us  in  series  or  blocks  of  events,  whether  they  be  con- 
crete things  or  psychic  data  or  such  events  as  the  world 
around  us  offers  in  countless  numbers.  Strictly  individual 
facts  do  not  exist  for  us,  though  we  have  the  ability  to 
abstract  them,  and  for  specific  purposes  may  attach  to 
them  distinct  individual  or  differential  meanings.  And 
this  circumstance  that  we  sense  everything  in  groups  has 
had  its  share  in  developing  in  us  the  physiological  ap- 
paratus for  recording  and  remembering  the  groups.  We 
learn  by  association,  and  connect  events  just  as  they  ap- 
peared to  our  senses.  "Acquired  mental  connections"  of 
this  kind  account  for  our  thinking  of  objects  not  present, 
and  show  why  sensations  should  quite  early  in  life  be  trans- 
formed into  perceptions  that  differ  from  the  former  as 
much  as  a  chemical  compound  differs  from  the  elements  out 
of  which  it  arose.     Whatever  the  final  explanation  of  the 

'Balfour,  A.  J.,  "Foundations  of  Belief,"  1906,  p.  339.  See  also: 
Hibben,  J.  G.,  "Inductive  Logic,"  p.  36;  Jodl,  F.,  "Lehrbuch  der 
Psychologic,"  edit.  1916,  vol.  II,  pp.  342-43. 


INFERENCE  155 

synthetic  powers  of  our  brain  or  mind  be,  this  creative  ele- 
ment has  a  physiological  parallel  in  the  associative  capaci- 
ties of  the  nervous  mechanism.  Events  often  found  to- 
gether, or  having  certain  features  in  common,  are  likely  to 
be  associated  in  an  act  of  recall.  "Whenever  a  sensory  or 
imaginal  process  occurs  in  consciousness,  there  are  likely 
to  appear  with  it  (of  course,  in  imaginal  terms)  all  those 
sensory  and  imaginal  processes  which  occurred  together 
with  it  in  any  earlier  conscious  present."  ^  Either  through 
resemblance  or  through  contiguity  the  association  is 
brought  about,  and  the  latter  is  the  one  here  applicable. 
For  if  events  have  frequently  and  with  much  regularity 
happened  together,  either  in  succession  or  simultaneously, 
we  shall  expect  them  to  recur  again  as  a  whole.  Though 
only  a  part  of  the  situation  be  present  to  our  senses,  the 
principle  of  association  restores  to  our  mind  the  whole 
of  it.  We  think  of  what  is  not  present  at  the  time,  but 
was  present  and  contiguous  in  time  or  space  with  what 
we  do  perceive.  Thus  our  expectation  is  not  only  one  of 
recurrence  in  the  future  for  any  one  event,  but  it  like- 
wise relates  to  larger  sets  of  events,  such  as  a  thunder- 
storm or  a  landscape  or  street-scenes,  or  whatever  occurs 
to  us.  "To  have  a  clear  case  of  expectation  it  is  not  neces- 
sary that  we  should  distinctly  remember  any  previous  ex- 
perience like  that  expected,  but  only  that  we  should  have 
actually  present  some  earlier  member  of  a  series  that  has 
become  firmly  associated  through  previous  experiences."  ^ 

« Titchener,  E.  B.,  "Textbook  of  Psychology,"  1910,  pp.  378,  393-95. 
For  eighteenth  century  view  of  Logic  see,  e.g..  Hartley,  D.,  "Ob- 
servations on  Man,"  1740,  vol.  I,  pp.  359-60;  Brown,  Th.,  "Lectures 
on  Philosophy  of  the  Human  Mind,"  edit.  1830,  Lecture  49. 

'Ward,  Jas.,  "Psychological  Principles,"  p.  209.  On  the  relation 
of  habituation  to  the  causal  concept  see  also  Russel,  B.,  "Our  Knowl- 
edge of  the  External  World,"  1914,  pp.  222-23. 


156  A  CRITIQUE  OF  ECONOMICS 

Besides,  it  is  brought  out  by  our  experiences  that  whole 
correlations  or  group s  of  events  may  be  predicted  the 
more  safely,  the  larger  the  percentage  of  parts  perceived 
at  the  moment,  and  of  course  the  more  regular  the  recur- 
rence in  toto  up  to  date.  Thus,  if  at  a  given  moment  I 
perceive  A,  B,  and  C  out  of  an  ensemble  of  ^,  B,  C,  Z>,  E, 
F,  and  G  I  shall  be  more  confident  that  Z),  E,  F,  and  G 
will  also  appear  immediately  afterwards,  or  are  there 
without  my  stopping  to  itemize  them,  than  if  I  perceived 
only  A  and  B.  The  chances  for  error  have  proven  greater 
in  an  expectation  resting  on  a  slender  basis  of  facts  than 
on  a  broad  basis,  and  so  our  inference  goes  back  once  more 
to  an  induction  from  numbers.  Whatever  the  tests  urged 
by  science,  unguided  inference  follows  this  criterion  and 
applies  it  to  groups  of  events  no  less  than  to  individuals. 

But  though  this  explains — as  far  as  such  facts  can — 
why  we  consider  all  men  past  and  future  to  be  mortal,  it 
does  not  tell  us  why  some  one  being  should  be  classed 
among  men,  why  Socrates  in  our  syllogism  should  be 
spoken  of  as  a  man.  It  still  remains  to  find  out  on  what 
grounds  we  place  him  in  the  class,  and  how  much  evidence 
we  have  gathered  to  justify  this  step. 

Now,  here  again  Hume  led  the  way  for  all  later  investi- 
gators. He  pointed  out  how  largely  we  are  governed  by 
appearance,  notably  by  differences  and  resemblances,^  and 
how  the  principle  of  association  operates  so  that  a  reap- 
pearance of  a  few  similarities  prompts  us  to  expect  the 

*  For  a  recent  opinion  on  modes  of  association  see:  Titchener,  E.  B., 
"Textbook  of  Psychology,"  p.  376;  Warren,  H.  C,  "Human  Psy- 
chology," 1920,  ch.  16;  Calkins,  M.  W.,  "A  First  Book  in  Psychology," 
4.  edit.,  pp.  117-24;  Hunter,  W.  S.,  "General  Psychology,"  1919,  p. 
287;  Jodl,  F.,  "Lehrbuch  der  Psychologie,"  1916,  vol.  II,  pp.  147-61. 
For  explanation  of  association  on  physiological  grounds  see  also 
Angell,  J.  R.,  "Introduction  to  Psychology,"  1918,  p.  165,  and 
Muensterberg,  H.,  "Psychology,"  1914,  pp.  111-19. 


INFERENCE  157 

others  that  on  a  previous  occasion  were  coupled  with  them. 
Continually  we  are  in  touch  with  identities  amid  diversity. 
Though  nothing  may,  on  close  inspection,  be  exactly  like 
anything  else,  yet  certain  outstanding  resemblances  be- 
come noticeable,  and  these  first  catch  our  eye  and  lead 
to  conclusions  as  to  a  relation  between  the  old  and  the 
new.  Though  we  may  at  times  be  proven  wrong,  in  the 
long  run  there  is  reason  for  our  habits.  We  note  sequences 
of  events,  and  are  satisfied  that  upon  certain  links  others 
will  follow  because  they  followed  before.  We  equate  un- 
equals,  so  far  as  our  knowledge  at  the  time  goes.  We 
go  by  circumstantial  evidence  and  take  risks  in  predicting 
the  future  from  the  past.  It  is  not,  therefore,  that  things 
discrete  in  time  or  space  are  completely  identified,  by 
an  enumeration  of  all  the  characteristics  known  to  us, 
but  that  we  select,  in  the  first  place,  a  few  from  among  a 
large  number  of  attributes,  and  in  the  second  place  do 
not  consider  even  all  of  these  necessary  for  classing  things 
or  events  or  men,  as  in  the  premise  of  our  syllogism.  Most 
of  our  everyday  reasoning  revolves  about  such  fragments 
of  evidence.  In  nine  out  of  ten  cases  it  consists,  to  quote 
from  W.  James,  of  "the  substitution  of  parts  and  their 
implications  or  consequences  for  wholes."  ^  "There  are 
two  great  points  in  reasoning:  First,  an  extracted  char- 
acter is  taken  as  equivalent  to  the  entire  datum  from 
which  it  comes;  and  secondly,  the  character  thus  taken 
suggests  a  certain  consequence  more  obviously  than  it  was 
suggested  by  the  total  datum  as  it  originally  came."  ^^ 

""Principles  of  Psychology,"  vol.  II,  p.  330,  edit,  of  1893.  An 
early  suggestion  of  the  idea  may  be  found  in  Locke's  "Essay  Con- 
cerning the  Human  Understanding,"  1690,  Book  4,  ch.  2,  §§  1-2. 

"James,  "Principles  of  Psychology,"  p.  340,  and  pp.  645^6.  See 
also:  Goddard,  H.   H.,  "Psychology  of  Normal  and  Abnormal,"  p. 


158  A  CRITIQUE  OF  ECONOMICS 

Thus  abstraction  expedites  comparison  and  evaluation. 
Qualities  stand  for  like  qualities  plus  others  that  are  in- 
ferred, because  experience  has  again  and  again  shown  them 
to  be  coexistents.  The  larger  the  percentage  of  common 
elements  shared  by  two  situations  or  groups  of  events, 
the  greater  the  likelihood  of  their  being  completely  alike. 
This  is  the  lesson  taught  us  in  our  life,  and  because  of 
it  inference  leads  to  reliable  predictions.  (Still,  if  it  does 
prove  false,  that  changes  in  no  wise  the  principle  of  infer- 
ence itself.)  Much  of  our  thinking  revolves  about  such 
considerations  of  similarities.  It  forms  part  of  our 
musings  and  deliberations  on  practical  affairs.  "Reflec- 
tion," as  has  been  stated  by  an  American  authority,  "im- 
plies that  something  is  believed  in  (or  disbelieved  in), 
not  on  its  own  direct  account,  but  through  something  else 
which  stands  as  witness,  evidence,  proof,  voucher,  war- 
rant ;  that  is,  as  ground  of  belief."  ^^  Or  to  quote  from  an 
English  critic  of  formal  logic:  "If  analogical  argument 
is  not  *f ormally  valid,'  no  argument  can  be  'formally  valid.' 
For  every  argument,  whether  'inductive'  or  'deductive,'  is 
really  analogical."  ^^  Ordinary  acts  of  recognition  con- 
sist of  such  inferences  of  identities  as  are  not  at  the 
time  established.  We  perceive  more  than  our  eyes  see. 
We  add  to  what  is  presented  in  the  shape  of  physical 
stimuli.  We  recognize  friends  by  a  few  signs,  a  rela- 
tively large  number  of  other  facts  that  we  should  need 
for  identification  being  altogether  ignored.     Change  the 

192;  and  Jodl,  F.,  "Lehrb.  der  Psychologie,"  vol.  II,  pp.  348-52. 
For  objections  to  this  view  see  Bosanquet,  B.,  "Logic,"  1888,  vol. 
II,  p.  58. 

"Dewey,  J.,  "How  We  Think,"  p.   8. 

"Schiller,  F.  C.  S.,  "Formal  Logic,"  p.  342;  Pillsbury,  W.  B., 
"Psychology  of  Reasoning,"  pp.  230-37;  and  similarly,  Joseph, 
H.  W.  B.,  "Introduction  to  Logic,"  eh.  24. 


INFERENCE  159 

clothes  or  the  beard  of  the  man,  and  you  may  fail  to 
know  him !  Make  sure  of  a  few  characteristics,  and  you 
have  the  whole  man !  Socrates  was  to  his  contemporaries 
a  man  because  of  a  few  outstanding  traits  out  of  the 
total  that  constitute  the  species. 

Relation  of  Induction  to  Deduction. — Bringing  these 
principles  of  reasoning  to  bear  upon  our  questions  of 
economic  methodology,  we  may  well  subscribe  to  the  words : 
"The  apparent  paradox  is  that  in  order  to  have  facts 
we  must  depend  upon  inference,  while  inference  in  turn 
rests  upon  facts."  ^^  That  is,  the  two  main  divisions  of 
logic  or  inference  are  inseparable,  though  a  distinction 
between  them  is  absolutely  necessary.  Deduction  and 
induction  cannot  be  torn  apart.  Men  have  always  recog- 
nized this  fact.^^^  In  one  sense,  to  be  sure,  the  syllogism 
is  the  prototype  of  all  reasoning,  but  as  regards  its  prem- 
ises they  force  us  to  consider  the  principles  of  enumera- 
tion and  substitution  by  analogy  which  may  be  employed 
without  the  kind  of  substitutions  practiced  by  formal 
logic.  Theoretically  induction  is  not  concerned  with  the 
laws  of  thought  enunciated  by  the  logician,  nor  need  this 
latter  interest  himself  in  the  origin  of  his  propositions 
from  which  he  draws  a  certain  conclusion.  But  prac- 
tically all  our  reasoning  combines  enumeration  with  anal- 
ogy, and  both  with  an  explanation  of  the  particular 
through  a  general,  through  a  universal  in  the  logical  sense. 

Deduction  in  Science. — All  this  is  a  commonplace  and 
calls  for  no  further  elucidations.  We  must  however  real- 
ize, in  the  second  place,  that  precisely  because   of  the 

» Bode,  B.  H.,  "An  Outline  of  Logic,"  1910,  p.  198. 

"•For  statements  to  this  eifect  see:  Wundt,  W.,  "Logik,"  vol.  II, 
Part  I,  §  1 ;  Joseph,  "Introduction  to  Logic,"  ch.  18 ;  and  Hunter, 
W.  S.,  "General  Psychology,"  p.  340. 


160  A  CRITIQUE  OF  ECONOMICS 

basic  concepts  of  formal  deduction  it  cannot  be  a  fit 
method  for  sciences  dealing  with  facts.  To  call  a  given 
science  deductive  is  to  give  rise  to  misconceptions,  to  chal- 
lenge criticism,  unless  we  wish  to  contrast  merely  two 
types  of  scientific  research,  viz.,  experimentation  or  statis- 
tics on  the  one  hand,  and  introspection  or  reflection  on  the 
other.  It  is  admissible  to  call  mathematics  a  discipline 
of  deduction  in  a  true  sense  of  the  word,  because  no  em- 
pirical data  are  involved  in  its  reasoning,  because  every- 
thing is  derived  from  some  premises  agreed  to  before- 
hand. Definitions  are  postulates,  and  the  so-called  axioms 
have  also  proven  to  be  postulates  for  the  largest  part. 
Thus  the  mathematician  uses  deduction  pure  and  simple, 
relying  upon  reflection  or  upon  experimental  data  only 
when  they  may  prompt  his  intuitions.  But  all  pursuits 
other  than  mathematics  must  choose  their  premises  care- 
fully if  their  conclusions  are  to  have  any  value.  They 
cannot  abstract  a  few  facts  from  an  actual  world,  and 
then  erect  upon  them  an  imposing  edifice  of  generalizations. 
Their  reasoning  may  be  good,  but  their  starting-point 
will  almost  surely  prove  fatal.  The  more  complex  the 
data  to  be  reckoned  with,  the  less  reliance  may  be  placed 
upon  a  few  premises  however  well  selected,  and  the  more 
clearly  the  science  must  be  inductive.  Especially  must 
the  social  sciences  for  this  reason  be  chiefly  inductive. 
Not  but  that  a  deductive  form  of  reasoning  may  be  em- 
ployed throughout  the  work.  Assuredly  so  !  But  this  kind 
of  deduction  in  form  will  be  united  with  induction,  and 
with  a  periodic  revision  of  premises  used  for  any  particu- 
lar argument.  The  logician  is  intent  upon  proving  things 
- — and  everything  may  be  proven  with  a  judicious  choice 
of  assumptions!     But  a  scientist  is  most  eager  for  veri- 


INFERENCE  161 

fications,  for  establishing  a  truth  squaring  with  facts, 
with  evidence  of  the  senses  wherever  it  may  be  forthcoming. 
Thus  the  alleged  deductive  social  sciences  will  not  mean 
what  writers  have  tempted  us  to  believe.  If  economics,  for 
instance,  is  a  deductive  science,  then  it  will  not  be  such 
because  of  its  arguing  by  means  of  a  syllogism — for  that 
is  true  of  all  sciences — ^but  because  its  laws  or  correla- 
tions are  not  derived  from  experimental  or  perhaps  statis- 
tical tests.  What  in  addition  to  this  distinguishes  eco- 
nomics from,  say,  physics,  is  a  second  question.  But  so 
much  many  be  said  a  propos  of  deduction. 

Logical  Validity  of  Induction. — Finally,  as  to  the  old 
problem  of  the  validity  of  induction  as  a  means  for  dis- 
covering verities,  we  must  agree  with  the  traditional  refuge 
in  a  law  of  the  uniformity  of  nature.  There  is  no  doubt 
of  the  logical  need  of  some  such  assumption  if  enumera- 
tion with  or  without  substitution  by  analogy  is  to  yield 
general  conclusions.  A  mechanistic  view  of  the  cosmos 
is  probably  the  most  suitable  for  the  purposes  of  the 
argument  from  induction.  We  must  grant  at  the  outset 
that  there  is  fixity  and  finiteness  in  nature.  We  must 
formulate  a  principle  of  necessary  connection  regardless 
of  the  irregularities  presented  to  our  senses  in  the  inter- 
relations of  perceptual  data.  We  must  say:  "There 
are  such  invariable  relations  between  different  events  at 
the  same  time,  or  at  different  times,  that  ^ven  the  state 
of  the  whole  universe  throughout  any  finite  time,  how- 
ever short,  every  previous  and  subsequent  event  can  the- 
oretically be  determined  as  a  function  of  the  given  events 
during  that  time.*'  ^*  Or  we  may  take  a  less  dogmatic 
attitude  by  siding  with  the  writer  of  the  following :    "The 

"  Russell,  B.,  "Scientific  Method  in  Philosophy,"  p.  221. 


162  A  CRITIQUE  OF  ECONOMICS 

law  of  the  Uniformity  of  Nature  appears  to  me  to  amount 
to  an  assertion  that  an  analogy  which  is  perfect,  except 
that  mere  differences  of  position  in  time  and  place  are 
treated  as  irrelevant,  is  a  valid  basis  for  a  generalization, 
two  total  causes  being  regarded  as  the  same  if  they  dif- 
fer only  in  their  position  in  time  or  space."  ^^  In  the  end, 
however,  we  shall  be  driven  to  a  still  more  skeptical  pose, 
preparing  thereby  a  basis  of  comparison  between  experi- 
mental and  statistical  induction,  although  it  may  not  sug- 
gest this  at  once.  Namely  we  must  grant  in  all  candor 
that  "unless  inductive  conclusions  [of  any  kind!]  be  ex- 
pressed in  terms  of  prohahUityy  all  inductive  inference 
involves  a  formal  fallacy,"  ^^  to  wit  a  petitio  prmcipiL 
"An  inductive  argument  affirms,  not  that  a  certain  matter 
of  fact  is  so,  but  that  relative  to  certain  evidence  there 
is  a  probability  in  its  favor.  The  validity  of  the  induc- 
tion, relative  to  the  original  evidence,  is  not  upset,  there- 
fore, if  as  a  fact  the  truth  turns  out  to  be  otherwise."  ^"^ 
Inference  as  such  may  be  good  irrespective  of  future 
proofs  to  the  contrary,  but  we  should  not  forget  that 
"while  it  is  often  convenient  to  speak  of  propositions  as 
certain  or  probable,  this  expresses  strictly  a  relationship 
in  which  they  stand  to  a  corpus  of  knowledge,  actual  or 
hypothetical,  and  not  a  characteristic  of  the  propositions 
in  themselves."  ^^  Such  is  the  lesson  taught  us  by  the 
whole  of  inference.  Barring  a  total  disregard  of  empirical 
data  we  are  always  liable  to  be  in  error,  no  matter  how 

"Keynes,  J.  M.,  "Treatise  on  Probability,"  1921,  pp.  226,  258,  264; 
Joseph,  "Logic,"  ch.  19;  Mill,  J.  S.,  "Logic,"  Book  III,  ch.  3,  which 
contains  a  much  quoted  view  on  the  empirical  origin  of  the  idea  of 
a  Uniformity  of  Nature. 

"Broad,  C.  D.,  in  Mind,  1918,  p.  26.  See  also  ibidem,  January, 
1920. 

"  Keynes,  "Treatise  on  Probability,"  p.  221. 

"  Ibidem,  p.  407. 


INFERENCE  163 

well  we  reason.  And  as  for  differentiating  sharply 
between  real  truths  and  invalid  inductions  in  science,  it  is 
impossible  to  justify  it  in  the  light  of  the  logic  of  infer- 
ence itself. 


CHAPTER  SEVEN 
LAW  AND  CAUSATION 

Questions. — The  fruit  of  induction  is  a  generalization;^ 
known  as  a  law  of  nature.     It  is  for  the  sake  of  reducing , 
the   multiplicity   of  data   passing  before   his   eyes   to   a 
relatively  few  fundamental  laws  that  a  scientist  goes  to  so 
much  trouble.     Science  has  not  accomplished  all  if  it  does 
not  yield  laws,  if  it  does  not  subsume  one  set  of  laws  under 
another  of  a  still  wider  prevalence  or  of  a  more  general 
form.     Hence  investigators  in  all  fields  may,  to  a  large 
extent,  be  judged  by  what  kind  of  laws  they  bring  to  view,  - 
this  criterion  being  as  valid  for  social  as  for  natural  sci- 
ences.    But  it  will  appear,  as  we  go  on,  that  there  are 
laws  of  two  very  different  types,  namely,  laws  in  the  nar-  • 
row  sense  and  laws  more  loosely  constructed  and  pass-  * 
ing  by  the  name  of  correlation.     The  question  thus  is:. 
Should  the  latter  be  classed  with  the  former?     Is  there 
a  difference  between  them  so  great  that  they  are  virtually 
incomparable?     Is  it  true  that  causation  is  part  of  a  law  . 
of  nature,  but  not  of  correlations  when  found  in  non- 
physical   data?      Or   can  we    in   some   way   establish   a 
bridge  between  law  and  correlation,  eliminating  the  causal 
aspect  or  robbing  it  of  its  portentous  significance  such  as 
tradition  has  assigned  to  it?    In  the  answer  to  these  ques- 
tions will  lie  a  not  inconsiderable  part  of  our  opinion  about 
the  scope  and  method,  the  character  and  possible  goal 
of  economics. 

164 


LAW  AND  CAUSATION  165 

What  is  a  Law  of  Nature. — Now,  first  of  all,  a  law  of 
nature  is  a  statement  of  a  regular  recurrence  of  sequences 
or  coexistences,  or  is  this  regularity  itself.  A  sequence 
consists  of  things  or  events  happening  in  succession  within 
some  time-unit,  whatever  it  turn  out  to  be  on  measuring  it. 
A  coexistence  is  a  group  of  things  or  events  existing  to- 
gether for  definite  or  indefinite  periods.  The  frequency 
with  which  these  uniformities  occur  or  recur  does  not  mat- 
ter. The  only  decisive  trait  is  the  absolute  regularity  of 
recurrence,  as  inferred  inductively  according  to  the  canons 
of  reasoning.  Coexistences  may  or  may  not  be  regarded 
as  a  real  class  of  laws.  It  depends,  and  authorities  have 
differed  on  the  subject.  But  such  bundles  as  the  quali- 
ties of  the  chemical  element  gold,  or  the  items  making 
up  a  living  organism  at  a  certain  moment  of  time,  en- 
during perhaps  for  a  long  span  of  time,  such  simul- 
taneities have  been  called  coexistence-laws,  with  and 
without  due  consideration  of  the  causal  values  in- 
volved. 

In  the  second  place,  a  law  of  nature  comprises  regulari- 
ties of  not  only  individual  things  or  events,  A  invariably 
occurring  before  or  after  B,  but  more  especially  regu- 
larities of  sets  of  events  such  that  Ay  B,  C  is  linked  in- 
separably with  Z>,  E,  F.  It  is  this  interdependence  of  a 
number  of  distinguishable  events  that  is  most  charac- 
teristic of  our  scientific  laws.  We  are  nearly  always 
dealing  with  bundles  of  events,  and  not  simply  with  indi- 
vidual units.  However,  it  is  a  commonplace  that  science 
is  interested  in  relations  rather  than  in  things,  and  that 
these  laws  of  nature  have  in  most  cases  a  quantitative 
meaning  as  well  as  a  qualitative  one.  That  is  to  say,  we 
not  only  establish  a  uniformity  of  data  which  because  of 


166  A  CRITIQUE  OF  ECONOMICS 

our  senses  must  assume  a  quality  aspect,  but  we  are  even 
more  intent  upon  finding  the  relative  amounts  of  these 
qualities  entering  into  a  uniformity.  To  say  that  a  cer- 
tain number  of  things,  e.  g.,  makes  up  a  thunderstorm  and 
that  the  law  consists  of  the  regular  recurrence  of  these 
magnitudes,  is  one  thing;  but  to  ascertain  the  quantities 
of  each  element  enumerated  is  still  another  thing.  Both 
of  these  relations,  or  only  one  of  them,  may  be  essential 
to  our  idea  of  the  law.  Yet  the  fact  of  our  seeking 
precise  quantities  is  so  familiar  to  all,  that  science  is  not 
inappropriately  called  the  study  and  measurement  of 
relations  of  magnitude. 

The  first  law  of  electro-statics  which  says  that  "any  two 
different  substances  brought  into  contact  become  electri- 
fied," treats  of  a  correlation  of  events  as  such,  meaning  of 
things  or  qualities ;  and  so  notably  also  many  laws  of  co- 
existence. But  for  the  most  part  science  is  a  treasure  of 
quantitative  relations  with  regard  to  such  events  qualita- 
tively sensed.  It  seeks  to  measure  these  quantities  exactly, 
to  note  the  changes  going  on  in  one  magnitude  or  another, 
in  one  group  as  against  another.  The  quantitative  rela- 
tive changes  are  watched  and  recorded.  The  proportions 
of  relative  rates  of  change  are  fitted  into  a  temporal  and 
spatial  order.  Thus  a  law  of  nature  becomes  a  statement 
of  magnitudes  fully  as  much  as  one  of  things  or  events. 
Thus  chemists  recognize  combinations  of  elements  previ- 
ously defined,  emphasizing  phases  of  metamorphosis  and 
measuring  precisely  the  proportions  involved  in  a  com- 
pound. The  law  of  combining  weights  for  instance  states 
that  "in  every  compound  substance  the  proportion  by 
weight  of  each  element  may  be  expressed  by  a  fixed  num- 
ber, a  different  one  for  each  element,  or  by  a  multiple  of 


LAW  AND  CAUSATION  167 

this  number  by  some  integer."  Boyle's  law  of  gases  deals 
with  relative  amounts  of  gas  and  temperature,  the  con- 
stants for  the  changes  being  the  burden  of  the  theorem. 
Indeed,  Boyle's  law  is  this  regular  recurrence  of  variations 
put  into  exact  quantitative  terms  for  temperature,  pres- 
sure, and  the  volume  of  a  gas,  these  observed  regular 
changes  in  the  past  serving  as  the  basis  of  a  prediction 
for  the  future. 

In  the  third  place,  natural  science  tries  to  reduce  its 
events  to  the  greatest  possible  degree  of  simplicity.  At 
last  analysis  the  things  or  qualities  of  science  are  not 
really  qualities  from  the  common-sense  standpoint,  but 
they  become  qualities  and  are  connected  with  perceivable 
common-sense  qualities  because  of  the  manner  in  which  all 
our  knowledge  must  be  garnered.  To  science  the  irreduci- 
bles,  are, — let  us  say — atoms  or  electrons,  or  mere  lines 
of  motion  or  force;  and  so  on.  It  is  on  account  of  this 
reduction  of  phenomena  experimentally  treated  to  non- 
descript, colorless,  indivisible  units  that  science  is  able 
to  draw  up  formulae  of  such  definiteness  and  sweep.  But 
if  we  look  at  these  formulae  in  our  texts  and  treatises  we 
shall  nevertheless  find  that  they  presuppose  the  reality  of 
objects  constructed  out  of  these  units.  That  is,  the  laws 
involve  a  study  of  things  precisely  as  known  to  our  ten 
senses.  What  the  reduction  to  last  units  does  is  mainly 
to  point  out  similarities  which  a  superficial  examination 
would  not  reveal.  We  are  told  that  "  a  body  immersed  in 
a  fluid  is  buoyed  up  by  a  force  equal  to  the  weight  of  the 
fluid  displaced,"  and  this  is  a  reference  to  common-sense 
facts,  as  well  as  to  a  relation  purely  scientific.  We  read 
again ;  "The  resistance  to  the  flow  of  an  electric  current 
varies  directly  as  the  length  and  inversely  as  the  area 


168  A  CRITIQUE  OF  ECONOMICS 

of  cross  section  of  the  conductor."  That  also  embraces 
two  kinds  of  things  or  events  or  units  taken  from  the 
world  of  percepts  and  that  of  concepts  respectively. 
Heat,  light,  and  motion  in  this  way  become  identical  facts 
for  science,  although  to  the  man  on  the  street  they  repre- 
sent quite  different  items. 

But  let  us  put  the  matter  yet  diiferently. 

The  units  of  natural  science  comprise  in  most,  though 
not  in  all,  cases  a  rather  limited  number  of  things  or  kinds 
of  events.  These  events  become  antecedents  and  conse- 
quents in  the  endless,  ever  recurring  successions  that  con- 
stitute the  warp  and  woof  of  our  experience,  but  are  skill- 
fully culled  out  from  the  totality  of  relations  by  our 
professional  student.  We  find  procedures  adopted  by 
him,  and  distinctions  made,  that  have  no  place  what- 
ever in  the  thinking  of  the  untrained  mind.  The  common- 
sense  attitude  is  unsuspecting  and  optimistic,  while  for 
the  scientist  many  difficulties  intervene  that  may  obstruct 
his  view.  A  few  crudely  gauged  unities  exist  for  the  for- 
mer; many  nicely  weighed  unities  for  the  latter.  If  we 
take  for  instance  such  a  familiar  happening  as  a  thun- 
derstorm, and  ask  what  divides  science  from  common 
sense,  we  shall  get  our  answer  in  two  types  of  analysis  of 
one  and  the  same  phenomenon.  The  average  observer  will 
point  to  wind,  rain,  clouds,  lightning,  and  thunder  as  the 
salient  features  in  the  process.  These  things  are  most 
readily  sensed  by  him,  and  so  he  enumerates  them  as  the 
ingredients  of  a  storm,  declaring  them  to  be  its  explana- 
tion. Other  items,  to  be  sure,  like  dust,  flood,  fire,  etc., 
may  be  mentioned  on  second  thought,  but  they  will  prob- 
ably be  granted  not  to  belong  really  to  the  subject  under 
investigation. 


LAW  AND  CAUSATION  169 

Now  by  contrast,  how  does  science  acquit  itself  of  its 
task  in  studying  this  same  set  of  events? 

It  becomes  evident  at  once  that  factors  will  loom  up 
which  we  would  not  offhand  think  of;  that  units  are  at 
stake  entirely  distinct  from  those  perceivable  entities 
known  to  common  sense;  and  that  order  in  time,  or  sub- 
sumption  in  a  classificatory  series,  is  insisted  upon  regard- 
less of  impressions  received  by  our  retina  or  tympanum. 
The  whole  phenomenon,  which  we  shall  here  call  an  event- 
complex  to  distinguish  it  from  the  last,  irreducible  units 
of  science,  is  broken  up  into  four  principal  divisions ;  or 
at  any  rate  we  should  find  such  a  division  convenient  if 
we  were  to  trace  all  its  links  from  start  to  finish.  But 
suppose  we  content  ourselves  with  only  one  division,  since 
otherwise  we  should  have  to  go  too  far  afield.  Suppose  we 
try  to  learn  from  the  physicist's  account  of  the  wind  alone 
what  interests  him  most,  and  why  his  units  for  qualitative 
and  quantitative  comparison  differ  in  essence  from  those 
of  an  untrained  man. 

We  observe  then  that  the  scientist  tells  us  of  the  weight 
of  the  atmosphere  which  is  a  result  of  the  mutual  attrac- 
tion between  the  sun  and  the  earth,  deriving  his  notion  of 
heaviness  from  this  attraction  and  the  fact  of  a  mass  of 
some  substance.  Science  would  also  mention  ejfther  as  a 
medium  in  which  light  travels,  as  well  as  the  radiation  of 
light  from  the  sun  to  us.  These  rays,  we  should  further 
be  informed,  are  partly  stored  up  by  the  earth,  and  partly 
reflected  back,  heating  the  superficies  of  the  earth  and  the 
atmosphere  nearest  to  it  up  to  a  certain  altitude.  Hence 
there  would  follow  greater  molecular  motion  of  the  air, 
this  latter  expanding  and  thereby  reducing  its  mass  per 
unit  volume. 


170  A  CRITIQUE  OF  ECONOMICS 

Being  made  lighter  in  this  fashion  the  air  will  rise 
according  to  a  principle  of  buoyancy,  while  the  heavier 
layers  sink  to  the  ground.  A  series  of  currents  are  thus 
set  up  conformable  to  laws  of  convection,  the  currents 
growing  the  stronger  the  more  marked  the  difference  in 
temperatiire  for  the  diverse  strata  of  the  atmosphere.  Yet 
the  air  need  not  rise  vertically;  for  a  number  of  inter- 
ferences are  usually  operating  to  which  scientists  pay  some 
attention.  The  rotation  of  the  earth  about  its  axis  for 
instance  would  play  its  part.  Irregularities  in  the  con- 
tour of  the  land,  and  different  rates  of  absorption  and 
radiation  of  heat  for  land  and  water  bodies  would  likewise 
prevent  a  straight  upward  movement  of  air  streams.  And 
so  other  factors  still.  Only  after  due  allowance  for  all 
of  these  elements  could  the  wind  beating  on  us  during 
an  electric  storm  be  said  to  have  been  explained  in  a  true 
scientific  sense.  The  qualitative  analysis  would  be  ap- 
proximately as  indicated,  and  a  quantitative  would  have 
to  be  made  if  the  storm  were  to  be  accounted  for  per  par- 
ticular area  or  stretch  of  time  to  distinguish  it  from  simi- 
lar affairs  in  the  past.  But  this  last  quantitative  analysis 
would  indeed  be  out  of  the  question. 

What  is  more,  and  in  the  fourth  place,  it  is  plain  that 
the  units  of  science  are  without  exception  intertwined 
with  other  events  or  units  that  do  not  for  the  moment 
form  a  part  of  our  survey.  All  laws  of  nature  are  ab- 
stractions in  that  they  refer  to  relations  lifted  carefully 
out  of  a  larger  whole.  We  may  be  mindful  of  the  en- 
veloping phenomena,  but  call  them  conditions  at  the  time. 
We  say  that  circumstances  alter  cases  and  that  condi- 
tions are  modifying  factors  affecting  the  qualities  or 
magnitudes     involved    in    our    law.    These     accompani- 


LAW  AND  CAUSATION  171 

ments  therefore,  since  they  invariably  surround  the  re- 
lations known  as  laws  of  nature,  must  be  studied  when- 
ever a  practical  purpose  guides  us,  whenever  a  special 
instance  is  to  be  "explained"  in  the  light  of  broad,  under- 
lying principles  which  themselves  are  laws  of  nature.  The 
conditions  are  perceptual  adjuncts  of  a  conceptual  play, 
as  it  were.  They  are  in  their  turn  the  parts  of  laws  which 
we  may  or  may  not  know.  They  cannot  do  otherwise  than 
obey  laws,  for  such  is  our  understanding  of  the  cosmos, 
such  is  the  trend  of  our  thinking.  It  may  be  impossible  for 
us  to  measure  accurately  the  effect  of  these  conditioning 
elements,  though  as  a  rule  natural  scientists  can  relate 
them  quantitatively  as  well  as  qualitatively  to  their  sub- 
ject under  review.  We  have  amassed  a  vast  fund  of 
just  that  class  of  facts  treated  as  conditioning  phe- 
nomena. But  in  meteorology,  e.  g.,  or  in  biology,  or  even 
in  the  throwing  of  dice  where  the  turn-up  of  pips  might 
be  studied  with  a  view  to  a  law,  our  conditions  defy  nice 
calculation.  We  simply  point  out  the  fact  that  the 
conditions  do  not  invalidate  our  reasoning,  or  the  law  pro- 
claimed. We  make  allowances  for  such  special  cases  and 
try  to  show  why  these  members  must  be  part  of  another 
law,  or  may  some  day  prove  to  be  one.  We  state  laws 
of  sound,  for  example,  and  consider  the  properties  of 
the  atmosphere  in  which  it  travels  before  explaining  one 
particular  rate  of  transmission.  We  learn  to  realize  that 
water  boils  at  different  temperatures  at  different  eleva- 
tions; why  freezing  points  may  vary;  why  water  will 
rise  in  a  pump  apparently  contrary  to  gravity;  why  a 
feather  will  not  fall  as  fast  as  a  stone ;  and  so  on.  Also, 
we  give  different  names  to  one  and  the  same  law  or  set  of 
facts  incorporated  in  it,  according  as  other  events  belong- 


172  A  CRITIQUE  OF  ECONOMICS 

ing  to  other  laws  accompany  it.  Thus  we  call  rust, 
metabolism,  and  fire  examples  of  combustion  because  a 
union  of  oxygen  with  some  other  substance  is  involved  in 
all  three,  and  because  this  is  the  definition  of  combustion 
that  has  most  recommended  itself  to  us  on  scientific  prin- 
ciples. Or  we  call  a  set  of  happenings  an  electric  cur- 
rent in  one  case,  and  northern  lights  in  another,  or  light- 
ning in  a  third.  And  of  course  we  may  use  our  knowl- 
edge of  these  modifying  elements  industrially  or  otherwise, 
adding  and  subtracting  till  our  artificial  product  seems 
to  have  little  in  common  with  the  sequences  or  coexistences 
found  in  a  state  of  nature.  Thus  we  may  make  flashless  or 
noiseless  powders,  produce  light  without  heat-giving  prop- 
erties, and  so  on.  The  qualifying  circumstances  of  a  law 
of  nature  are  therefore  no  disadvantage,  nor  could  we 
imagine  them  away,  when  isolating  our  set  of  law-elements. 
What  we  must  remember  only  is  the  consistency  of  these 
conditions  with  our  basic  concept  of  a  law  of  nature. 
Rightly  understood  there  are  no  exceptions  to  our  law. 
Science  so  decrees  it.  "There  are  no  breaches  of  scientific 
law ;  or  of  a  law  of  nature.  If  events  are  observed  which 
do  not  conform  to  what  we  have  hitherto  called  a  law, 
we  conclude,  not  that  the  law  is  broken,  but  that  we  were 
ignorant  of  the  law."  ^ 

Subjective  Basis  of  Science. — From  this  follows,  in  the 
fifth  place,  that  a  law  of  science  is  after  all  a  rather  sub- 
jective affair;  that  it  has  a  human  no  less  than  a  physical 
side,  and  that  we  should  never  lose  sight  of  this  dual  na- 
ture of  our  understanding  if  we  wish  to  bring  the  several 
fields  of  inquiry  into  relation  with  one  another. 

^Joseph,  H.  W.  B.,  "Introduction  to  Logic,"  1916,  p.  2.  For  a 
modified  view  see  Whitehead,  A.  N.,  "Inquiry  Concerning  Principles 
of  Natural  Knowledge,"  p.  87. 


LAW  AND  CAUSATION  173 

Even  scientists  themselves  have  increasingly  admitted 
the  conceptual  basis  of  their  data  perceptually  derived, 
or  perhaps  rather:  They  have  learned  to  make  the  con- 
cepts of  a  creative  mind  a  terminus  as  well  as  the  start- 
ing-point of  their  researches  in  sensations.  Realism,  to  be 
sure,  is  the  first  postulate  of  all  science.  A  scientist  can- 
not afford  to  doubt  the  reality  of  the  world  about  him,  to 
question  whether  he  exists  or  not,  whether  he  may  know 
things  or  not,  whether  what  seems  to  be  space,  time,  sub- 
stance and  change  is  such  or  not.  To  a  large  degree  sci- 
ence is  necessarily  naive,  sharing  this  characteristic  with 
the  bulk  of  practical-minded  people.  Realism  is  a  pre- 
requisite to  men  of  science  at  the  outset.  And  yet  they 
may  feel  free  to  dwell  on  their  limitations  as  knowers, 
falling  in  line  with  philosophers  who  have  at  all  times 
stressed  the  problem  of  metaphysics  and  epistemology. 
Thus  the  nineteenth  century  gave  rise  to  a  large  literature 
deprecating  the  efforts  of  science.  Laws  of  nature  were 
viewed  as  products  of  a  mind  operating  independently,  to 
a  certain  extent,  of  the  material  realm  around  it.  Phe- 
nomenalism made  headway  and  rendered  useful  services. 
A  skeptical  attitude  was  fostered  and  made  the  grounds 
of  a  methodology,  mathematics,  and  theory  of  knowledge 
that  is  metaphysical  in  spite  of  being  championed  by 
eminent  scientists.  Thus  we  might  quote  as  follows: 
*'Law  in  the  scientific  sense  is  essentially  a  product  of  the 
human  mind,  and  has  no  meaning  apart  from  men."  ^ 
Science  is  "an  uninterrupted,  but  progressive  series  of 
mental  constructions,  which  series  gives  us  an  approximate 
idea  (representation)  of  the  interconnected  system  of 
Reality."  ^    It  would  not  be  absurd  "to  attribute  the  whole 

^Pearson,  K.,  "Grammar  of  Science,"  edit,  of  1900,  pp.  87  and  113. 
"Enriques,  F.,  "Problems  of  Science"  (transl.  by  K.  Royce,  1914), 
Bart:  "Problems  of  Logic,"  §  11  and  §  19. 


174  A  CRITIQUE  OF  ECONOMICS 

responsibility  for  the  laws  of  mechanics  and  of  gravita- 
tion to  the  mind,'^  denying  altogether  that  "the  external 
world  has  any  share  in  them."  ^  The  metaphysical  creeds 
back  of  these  three  statements  could  not  be  called  the 
same,  but  the  spirit  of  phenomenalism  is  quite  apparent. 

However,  it  is  no  more  necessary  to  espouse  phenomen- 
alism because  we  accept  dualism  in  metaphysics  or  episte- 
mology,  than  there  is  ground  for  one's  being  either  a  Kan- 
tian transcendentalist  or  a  monistic  materialist.  These 
questions  of  choice,  and  points  of  refinements  brought  up 
by  the  professional  speculators  need  not  detain  us.  But 
plainly  a  problem  of  valuation  exists.  There  is  reason 
for  a  committal  on  the  query  whether  law,  respectively 
causation,  are  undoubted  facts  in  the  outside  world,  or 
purely  our  invention,  or  perhaps  a  third  something. 
And  there  is  likewise  reason,  from  the  viewpoint  of  the 
economist,  for  taking  this  last  suggested  middle  road,  for 
siding  with  the  critical  realists  rather  than  with  out-and- 
out  idealists  or  uncompromising  monists. 

What  seems  necessary  first  is  a  resort  to  transcend- 
ence, if  knowledge  (including  scientific  data)  is  to  become 
explicable  without  straining  our  demand  for  logic;  and 
what  again  seems  evident  is  the  difference,  not  between 
a  Real  and  a  Knowable  as  Kant  had  insisted  upon  it,  but 
between  an  object  and  its  content  for  us,  or  between  mag- 
nitudes of  data  and  their  relations.  Granting  that  knower 
and  the  known  are  two  facts,  and  granting  also  that  an 
element  of  relativity  enters  into  all  our  understanding  of 
events,  we  are  still  able  to  harmonize  the  largest  possible 
variety  of  data  and  problems  in  the  one  belief  that  the 

*Eddington,  A.  S.,  in  "Mind,"  1920,  p.  155.    See  also  Bain,  A., 
"Logic,"  1874,  p.  353. 


LAW  AND  CAUSATION  175 

objective  minimum  and  our  subjective  maximum  of  ex- 
perience are  fused  by  a  process  which  presupposes  trans- 
cendence. More  than  sensation  and  science  is  at  stake; 
but  in  them  the  raw-materials  are  given  out  of  which  we 
build  our  castles  and  creeds.  If  we  may  accept  the  words 
of  a  recent  work  on  this  subject,  we  believe  "that  'physical' 
things  exist  independently  of  being  known ;  that  they  may 
be  our  objects,  but  that  they  are  never  our  mental  con- 
tent; that  they  differ  in  some  respects  from  the  quality- 
groups  of  our  perception  (e.  g.,  in  not  possessing  the 
secondary  qualities  which  we  find  in  our  percepts)  ;  but 
that  they  stand  in  such  causal  relation  to  our  percepts 
that  it  is  possible  for  science  to  investigate  some  of  these 
relations  and  some  of  the  relations  between  the  physical 
things,  and  thus  to  gain  trustworthy  knowledge  concern- 
ing the  laws  of  their  actions."  ^ 

It  is  with  our  knowing  process  and  our  valuations,  in 
other  words,  as  with  the  act  of  perception  that  psycholo- 
gists have  dwelt  on  so  often,  and  most  illuminatingly.  We 
see  more  and  less  than  is  presented  to  our  eyes,  and  we  see 
different  things  according  to  our  angle  of  vision,  antece- 
dents of  thought,  etc.  In  the  blend  of  points,  lines  and 
shades,  for  instance,  which  a  book  on  psychology  calls  our 
attention  to,  we  may  see  either  a  duck's  bill  or  a  rabbit's 
head,  according  to  focus  and  predisposition.  Both  pic- 
tures may  be  read  into,  or  out  of,  the  data  presented,  but 
it  is  hardly  possible  to  predict  which  one  we  shall  first 
think  of.  There  are  principles  that  decide  our  interpre- 
tation, and  it  is  not  difficult  to  explain  why  and  how  both 

""Essays  in  Critical  Realism"  by  Drake,  D.,  Lovejoy,  A.  O.,  Pratt, 
P.,  Rogers,  A.  TC.,  Santayana,  G.,  Sellars,  R.  W.,  and  Strong,  C.  A., 
1920.  See  also  essay  by  Pratt,  p.  109,  and  Sellars,  R.  W.,  in  "Mind,'* 
1919,  pp.  410,  and  407-26. 


176  A  CRITIQUE  OF  ECONOMICS 

readings  are  brought  about;  but  there  is  no  sure  way  of 
excluding  entirely  either  one  of  them. 

Thus  life  itself  is  a  maze  of  potential  values,  of  possi- 
bilities that  alternate  or  succeed  each  other  or  are  com- 
bined for  some  reason.  A  vast  array  of  puzzle  pictures,  in 
one  sense,  is  this  Manifold !  A  meshwork  so  finely  wrought 
and  intricate,  so  susceptible  to  change,  and  so  replete 
with  promises  and  perplexities,  that  no  one  generation  of 
students  may  hope  to  understand  all,  or  to  speak  the 
truth  for  times  unending.  Or  to  state  the  matter  more 
specifically,  and  in  terms  of  the  philosopher:  "The  sense 
of  the  outer  existence  of  these  essences  [of  reality]  is  in- 
distinguishably  fused  with  their  appearance.  But  these 
two  aspects  of  perception,  the  appearance  of  the  char- 
acter-complex and  the  (implicit)  affirmation  of  its  outer 
existence,  must  in  reflection  be  distinguished."  ^  More 
than  that,  "a  law  of  nature — is  not  a  uniformity  which 
must  be  obeyed  by  all  objects,  but  merely  a  uniformity 
which  is  as  a  matter  of  fact  obeyed  by  those  objects  which 
have  come  beneath  our  observation."  '^  "Before  a  rigorous 
logical  scrutiny  the  Reign  of  Law  will  prove  to  be  an  un- 
verified hypothesis  .  .  .  ,  and  the  certainty  of  our  scien- 
tific inferences  to  a  great  extent  a  delusion."^  "A  'law' 
is  not  an  absolute  self-evident  certainty  to  be  imposed  on 
reality  by  main  force.  It  is  a  flexible  formula  for  applica- 
tion to  cases,  and  gets  its  real  meaning  from  the  cases  to 

which  it  has  been  successfully  applied."  ^ 

*  Ibidem,  essay  by  Drake,  D.,  pp.  20  and  24.  See  also  Royce,  J., 
"The  World  and  the  Individual,"  2.  Series  of  Lectures,  p.  159. 
Also:  Windelband,  W.,  "Logic,  in  Encyclopedia  of  Philosophical 
Sciences "  1913    vol.  I    p.  47. 

'  Jevons,  W.  S.,  "Principles  of  Science,"  3.  edit.,  pp.  737-38. 

^Ibidem,  Preface. 

•Schiller,  F.  C.  S.,  "Formal  Logic,"  p.  320.  Similarly,  Mach,  E., 
"Erkenntnis  und  Irrtum,"  p.  449. 


LAW  AND  CAUSATION  177 

Correlations. — Estimates  like  these  should  in  them- 
selves warn  us  not  to  be  too  dogmatic  in  distinguishing 
between  science  and  common  sense,  or  on  the  other  hand 
between  the  laws  of  natural  science  and  those  other  for- 
mulae known  as  statistical  correlations.  We  may  say  of 
laws  in  the  narrow  sense  that  they  are  (a)  built  up  of 
what  for  the  time  are  proven  to  be  irreducible  units — 
perhaps  literally  "atoms'^  — ,  (b)  that  these  sets  of 
units  are  properly  detached  from  our  perceptual  sphere  of 
experience,  (c)  that  the  conditioning  factors  are  as  a 
rule  measurable  and  logically  parts  of  other  laws,  and 
again  (d)  that  these  groups  of  events  recur  with  absolute 
fidelity,  constituting  an  interdependence  that  knows  no 
exception.  We  may  define  our  law  of  nature  in  this  man- 
ner, but  this  still  leaves  a  basis  for  comparing  it  with 
correlations  of  a  more  flexible  sort. 

But  let  us  see  what  exactly  are  the  differences  and  re- 
semblances. 

We  find,  to  begin  with,  that  there  are  classes  of 
regularities  not  nearly  as  perfect  as  those  of  physics 
or  chemistry,  and  yet  valid  for  a  given  region  or  period 
of  time.  Even  in  natural  science  correlations  are  some- 
times the  best  thing  that  research  can  unearth.  Even 
in  biology  and  for  the  meteorologist  functional  relations 
of  an  indeterminate  number  of  variables  play  a  prominent 
role.  But  as  soon  as  we  pass  from  the  lower  forms  of 
life  to  the  higher,  and  especially  as  we  enter  upon  the 
domain  of  human  happenings,  the  intricacy  of  relations 
becomes  proverbial.  What  characterizes  statistical  rela- 
tions therefore  is  the  large  and  more  or  less  indefinite 
number  of  units  comprised  in  them,  the  variability  of  our 
qualities  or  events  as  well  as  of  their  respective  magni- 


178  A  CRITIQUE  OF  ECONOMICS 

tudes.  We  are  studying  event-complexes  rather  than  ulti- 
mate units  of  matter  or  force.  That  is,  we  bring  into 
quantitative  relation  such  events  as  are  directly  presented 
to  our  senses,  or  as  are  supposed  by  natural  science  to 
be  built  up  of  smaller  units  of  a  homogeneous  physical 
sort.  Not  always  of  course,  but  predominantly  this  is 
a  fact.  With  life  and  growth-force  comes  complexity,  in- 
stability, and  an  intermingling  of  elements  that  physicists 
and  chemists  know  nothing  of.  The  mechanical  equivalent 
in  one  sense  still  rules,  but  for  purposes  of  generalization 
it  is  dead  or  insignificant.  We  must  regard  our  data 
as  elements  in  a  propositional  function,  to  use  the  terms 
of  the  mathematician.  We  must  accept  units  for  meas- 
urement which  are  scattered  over  large  areas,  over  long 
stretches  of  time,  or  whose  composition  is  of  vital  entities, 
of  cells  and  whole  organism  or  their  parts,  of  groups  of 
beings  studied  in  their  relation  with  physical  or  psychic 
facts.  Social  sciences  most  obviously  are  affected  by  this 
peculiarity  of  the  units  from  which  the  event-complexes  are 
constructed,  and  whose  several  interdependencies  numer- 
ically expressed  are  the  essence  of  a  scientific  correla- 
tion. It  is  undoubtedly  true  that  any  change  in  the 
physical  world  may  bear  upon  the  so-called  psychic  facts 
under  investigation.  An  extermination  of  noxious  plants 
or  insects,  alterations  in  the  income  of  individuals,  or  in 
methods  of  production  and  exchange,  or  in  types  of  asso- 
ciation of  men,  or  in  the  uses  of  things,  and  in  personal 
valuation  and  institutional  policy — these  and  other 
changes  mean  a  realignment  of  elements  in  every  correla- 
tion we  may  aim  at  or  have  already  discovered.  In  other 
words,  owing  to  the  dynamic  factor  known  as  vital  force 
or  bathmism  or  human  will  or  animal  instinct  or  helio- 


LAW  AND  CAUSATION  179 

tropism  or  metabolism,  etc.,  the  social  scientist  deals  with 
interaction  between  physical  and  cultural  or  social  en- 
vironments, as  well  as  with  a  play  between  physics  and 
psychics  (supposing  we  grant  this  line  of  division  at  all). 
For  this  reason  a  marked  difference  between  law  and 
correlation  exists.  The  first  has  a  small  and  definite 
number  of  units  conceived  as  irreducibles.  Its  qualitative 
and  quantitative  relations  may  be  established  by  approved 
methods,  and  the  conditioning  elements  usually  be  sub- 
jected to  a  like  exact  measurement.  The  second  group 
however,  viz.,  our  correlations  in  bio-metrics  or  physiology 
or  social  science,  rest  on  highly  complex  units,  on  what 
the  physical  scientist  would  call  compounds.  Variability 
follows  from  the  complexity  of  the  units,  while  the  inter- 
relation between  physical  and  non-physical  data  accentu- 
ates the  difficulty  of  finding  a  true  generalization.  Again 
we  may  start  where  we  please,  and  wherever  a  marked 
quantitative  negative  or  positive  correspondence  appears, 
there  the  grounds  for  induction  are  provided.  Thus  I 
may  correlate  the  weather  with  passenger-receipts  or  with 
employment  facts,  or  with  suicides  or  acre-yields  or  with 
the  efficiency  of  laborers  in  a  mill.  All  this  is  logically 
tenable  and  may  lead  to  useful  information.  If  natural 
science  has  a  free  field  for  examination,  how  much  more 
so  the  biologist  or  social  philosopher !  But  both  law  and 
correlation  are  derived  from  units  taken  for  the  time  as 
irreducibles  and  realities  of  the  outside  world.  We  have  a 
correlation  in  both  cases,  though  the  unfailing  regularity 
of  a  law,  being  demonstrable  by  standard  devices,  exceeds 
greatly  the  proximate  regularity  of  correlations.  There 
is  qualitative  as  well  as  quantitative  correlation,  absolute 
facts   being   connected   in   time   and   space.      There   are 


180  A  CRITIQUE  OF  ECONOMICS 

relative  rates  of  change,  and  constants  of  such  interde- 
pendent magnitudes.  And  once  more,  while  the  con- 
ditioning factors  are  rarely  measurable  in  correlations, 
differing  in  this  respect  from  the  accompaniments  of  a  ^ 
law  of  nature,  yet  the  mere  circumstance  of  a  condi- 
tional environment  common  to  both  is  equally  noteworthy. 
For  it  means  that  correlation  no  less  than  law  is  an  ab- 
stract.  It  means  that  the  subjective  element  remains  in 
both,  though  in  different  strengths.  It  means  that  there 
is  no  more  reason  for  denying  the  uniformity  of  condi- 
tioning phenomena  in  social  science  than  we  are  likely  to 
deny  it  to  the  perceptual  events  cradling,  as  it  were,  the 
laws  of  nature. 

If  a  further  distinction  therefore  is  to  be  made  between 
law  and  correlation,  it  cannot  hinge  on  their  inward  na- 
ture, but  only  on  the  units  of  events  and  time  within  which 
each  set  of  events  reaches  a  regularity  of  recurrence.  The 
choice  of  these  temporal  and  spatial  units  is  verily  signifi- 
cant; for  absolute  time  and  space  may  be  considered 
irrelevant  for  our  problem.  What  counts  most  is  the  cir- 
cumstance that  our  laws  and  correlations  are  hedged  in 
by  finite  amounts  of  these  infinities.  We  deliberately  re- 
late our  correlates  of  physical  or  other  complexes  to  such 
doses  of  time  and  space.  One  becomes  a  function  of  the 
other.  We  take  the  reality  of  time  and  space  for  granted 
and  then  snip  off  fractions  to  serve  as  a  vehicle  for  our 
quantitative  expressions.  Thus,  although  the  outer  limits 
of  time  and  space  for  the  possible  laws  of  an  organism 
would  be  its  life  and  the  earth,  the  experimental  time  and 
space  units  for  natural  scientists  are  relatively  small. 
But  in  the  social  sciences  both  time  and  space  units  may 
be  very  large,  and  usually  are  rather  poorly  defined,  so 


LAW  AND  CAUSATION  181 

that  the  diiference  between  sequences  and  co-existences 
may  scarcely  be  ascertainable. 

What  is  Causation? — Hence  a  problem  also  arises  as 
to  the  place  of  temporal  or  spatial  units  in  a  causal 
analysis  of  both  physical  laws  and  statistical  correla- 
tions, a  matter  that  will  lead  us  to  inquire  into  the  true 
relation  of  causality  to  law,  respectively  correlation.  We 
may  ask:  Are  law  and  causation  different  entities,  or 
not?  Is  cause-effect  a  part  of  law,  but  not  of  correlation? 
Or  should  we  decide  differently? 

It  will  do  no  harm  to  begin  with  a  few  representative 
quotations  from  works  which  are  notable  for  their  mas- 
terly treatment  of  this  vexing  question.  We  shall  then 
appreciate  at  once  the  identity  of  law  and  causation  as 
seen  from  one  particular  angle.  Thus  we  read  with  in- 
terest statements  like  these:  "When  we  say  that  every 
effect  has  a  cause,  we  mean  that  every  event  is  connected 
with  something  in  a  way  that  might  make  somebody  call 
that  the  cause  of  it."  ^^  "There  is  no  particular  dif- 
ference between  knowledge  of  causes  and  our  general 
knowledge  of  the  combinations,  or  succession  of  combina- 
tions, in  which  the  phenomena  of  nature  are  presented  to 
us,  or  found  to  occur  in  experimental  inquiry."  ■^^  "A 
cause  is  not  to  be  distinguished  from  the  group  of  positive 
or  negative  conditions  which,  with  more  or  less  probability, 
precede  an  event."  ^^    "Things  are  not  either  independent 

^"Cliiford,    W.     K.,    "On    Aims    and    Instruments    of    Scientific 
Thought,"  1872;  Becher,  E.,  "Naturphilosophie,"  1914,  p.  148. 

"  Jevons,  W.  S.,  "Principles  of  Science,"  Book  II,   §  1. 

^'Ibidem.  See  also  Gibson,  W.  R.  B.,  "The  Problem  of  Logic," 
1908,  p.  372.  For  an  early  statement  see  Reid,  Th.,  "Inquiry  into 
the  Human  Mind  on  Principles  of  Common  Sense,"  1764  (Sneath, 
E.  H.,  editor,  publ.  by  Holt,  H.,  1892),  p.  332.  A  recent  suggestive 
criticism  of  the  popular  view  of  causation  is  given  by  Campbell,  / 
N.  R.,  "Physics,  The  Elements,"  1920,  pp.  57-70,  ^ 


182  A  CRITIQUE  OF  ECONOMICS 

or  causative.  All  classes  of  phenomena  are  linked  to- 
gether, and  the  problem  in  each  case  is  how  close  is  the 
degree  of  association.'*  ^^  "The  origin  of  the  concept 
of  causation  is  now  manifest.  It  is  that  of  the  part,  ex- 
plaining the  whole — or,  avoiding  this  untechnical  use  of 
*part'  and  'whole,' — it  is  that  of  some  explaining  oZZ."  ^* 
"It  is  involved  in  the  causal  relation  that  if  two  things  are 
really  cause  and  effect,  the  one  never  exists  without  the 
other."  1^ 

In  other  words,  to  ask  what  is  the  cause  of  this,  what 
is  the  reason  for  it?  Why  did  it  happen?  is  to  ask  sim- 
ply: What  else  goes  with  it  or  follows  or  precedes? 
What  is  it  that  regularly  or  ordinarily,  so  far  as  our  ex- 
perience tells,  forms  part  of  the  chain  of  events  of  which 
the  event  known  as  eifect  is  also  a  part?  This  is  the 
real  meaning  of  our  inquiry  about  the  why  and  wherefore. 
We  want  things  or  happenings  connected  in  a  series  which 
regularly  recurs  either  exactly  as  witnessed  by  our  senses, 
or  in  the  form  which  science  by  degrees  sifts  out  as  the 
quintessence  of  a  law  of  nature.  But  let  us  not  forget 
that  the  events  must  have  a  name  or  must  be  specific,  so 
we  may  recognize  them,  setting  them  aside  from  other 
events.  If  we  were  to  assert  that  causation  means  merely 
a  succession  of  facts,  without  attempting  to  itemize  their 
characteristics,  we  should  not  have  ventured  very  much. 
It  is  not  any  x  followed  by  any  y  that  engages  our  at- 

"  Pearson,  K.,  "Grammar  of  Science,"  edit,  of  1911,  vol.  I,  p.  166, 
and  pp.  157,  173, 

"Whitehead,  A,  N.,  "Inquiry  Concerning  Principles  of  Natural 
Knowledge,"  p.  187. 

"Joseph,  "Logic,"  p.  429.  His  classification  of  causes  is  given  on 
pages  459-62.  See  also  Schiller's  excellent  tabulation,  "Formal  Logic," 
eh.  20,  §  7.  For  a  dynamic  view  of  causes  as  variables  see  Russell, 
B.  "The  Analysis  of  Mind,"  1921,  pp.  93-98.  On  plurality  see 
Joseph,  "Logic,"  ch.  22,  and  Venn,  J.,  "Logic,"  p.  62. 


LAW  AND  CAUSATION  183 

tention,  but  some  distinguishable  known  a  and  6,  or  specific 
sets  of  events  such  as  abc  as  antecedents,  and  de^  as 
consequents.  Everything  happens  in  bundles  or  groups, 
not  as  a  line  of  individual  events  separated  by  long  inter- 
vals of  time.  Specific  causation  therefore  is  our  topic, 
not  an  attenuated  theorem  of  Uniformity  of  Nature  such 
as  logicians  must  postulate  when  they  talk  of  induction 
and  the  roots  of  human  knowledge. 

Now,  of  this  sort  of  causality  a  huge  literature  has 
treated  for  many  centuries,  and  yet  some  problems  have 
remained  unsolved  or  in  any  case  seem  still  susceptible  of 
more  than  one  solution. 

To  begin  with  there  is,  e.  g.,  the  old  query  whether  co- 
existences can  be  causal  or  not.  The  majority  of  logicians 
has  counseled  the  rejection  of  a  causal  status  for  co- 
existences. John  Stuart  Mill's  attitude  has  been  fairly 
typical  in  this  matter  as  in  some  others.  He  assures  us : 
"The  law  of  causation — is  but  the  familiar  truth  that  in- 
variability of  succession  is  found  by  observation  to  obtain 
between  every  fact  in  nature  and  some  other  fact  which 
has  preceded  it  .  .  ."  ^^  "There  are  certainly  cases  in 
which  the  effect  follows  without  any  interval  perceptible 
to  our  faculties,"  but  "whether  the  cause  and  its  effect  be 
necessarily  successive  or  not,  causation  is  still  the  law  of 
the  succession  of  phenomena."  ^'^  Such  was  the  great 
Englishman's  view,  and  one  suspects  that  his  training  in 
an  older  school  of  metaphysicians  was  partly  responsible 
for  his  verdict.  For  if  we  may  believe  the  writers  quoted 
a  while  ago,  or  if  we  proceed  to  examine  at  close  range  the 
structure,  the  anatomy  so  to  say,  of  law  and  correlation, 

"  Book  III,  ch.  5,  §  2. 
"  lUdem,  §  6. 


184  A  CRITIQUE  OF  ECONOMICS 

we  shall  not  be  inclined  to  predicate  of  sequences  more 
than  of  coexistences.    But  of  this  a  little  later. 

Another  point  about  causality,  as  students  are  well 
aware,  is  the  rather  arbitrary  fashion  in  which  we  single 
out  certain  events  as  causes  (respectively  effects),  with- 
out realizing  it  at  the  time.  The  common-sense  man  errs 
here  as  he  does  on  other  occasions.  He  sees  perchance  a 
leaf  dropping  from  a  tree,  and  on  being  questioned  as 
to  the  cause,  says :  The  wind,  of  course.  It  is  clear  to 
him  that  no  other  explanation  is  as  plausible.  He  takes 
many  things  for  granted,  such  as  the  rotting  of  the  fiber 
that  for  long  months  fastened  the  leaf  securely  to  the 
twig,  or  the  law  of  gravity,  or  the  angle  at  which  the  leaf 
was  struck  by  the  breeze,  or  the  condition  of  the  tissue  in 
the  leaf  which  made  it  wilt  and  curl.  These  sorts  of 
facts  do  not  interest  him.  He  overlooks  them  in  making 
his  diagnosis  and  does  well  in  doing  so.  But  note  that  by 
this  route  an  end  result  becomes  an  effect  to  a  cause  which 
itself  is  only  one  of  a  variety  of  elements  to  be  con- 
sidered by  us,  were  we  to  be  scientific,  and  not  practical. 
Motion  and  action,  for  that  matter,  usually  arouse  our 
attention  and  prompt  us  to  pronounce  them  causes.  Or 
we  assume  a  certain  set  of  facts  because  we  become  used 
to  them,  picture  them  as  constants,  and  then  pounce  on 
a  detail  as  the  variable  or  cause.  Just  as  primitive  folk  as- 
sociate causes  with  gods  and  designing  human  beings,  so 
movement  appears  as  an  agent  setting  off  effects  at  a 
given  time.  This  is  one  mistake  that  trained  minds  will 
not  be  long  in  disclosing  to  the  unsophisticated.  But 
it  is  not  the  only  one,  nor  perhaps  the  worst. 

For  equally  indefensible  is  the  belief  that  there  may  be 
a  plurality  of  causes,  and  yet  not  one  of  effects — a  notion 


LAW  AND  CAUSATION  185 

that  runs  like  a  continuous  thread  through  a  considerable 
literature  in  logic  and  philosophy.  But  why  should  we 
insist  upon  such  a  distinction,  once  we  have  studied  laws 
as  bundles  of  units  of  a  more  or  less  elemental  character? 
Plainly,  if  it  is  true  that  many  causes  of  death  exist, 
or  that  in  this  sense  events  do  not  occur  in  a  reversible 
order,  so  also  should  we  understand  that  any  one  cause 
has  many  effects,  if  the  effects  are  analyzed  as  minutely  as 
our  alleged  causes.  That  is,  if  we  reduce  effects  to  as 
small  units  as  our  causes,  then  we  have  either  a  perfect 
reciprocity  of  causation,  or  we  have  none  at  all,  because 
as  perceptual  events  causes  and  effects  are  never  alto- 
gether the  same,  however  similar  their  recurrences  may 
seem  to  be.  Thus  to  argue  for  many  causes  of  one  con- 
sequent called  death  is  to  forget  that  death  is  an  event- 
complex  built  out  of  scores  and  hundreds  of  smaller  units 
of  events,  each  one  of  which  according  to  the  mechanics 
of  natural  science  must  have  just  one  correspondent  in 
the  group  of  antecedents  styled  the  causes.  Not  to  argue 
for  the  variety  of  causes  in  such  an  article  as  poison,  let 
us  be  mindful  of  the  almost  infinite  number  of  conse- 
quents connected  with  the  swallowing  of  it.  Why  make 
death  one  event,  and  then  link  it  with  a  host  of  different 
events  leading  up  to  it,  such  as  disease  or  accident  or  a 
paralytic  stroke  or  the  taking  of  poison  or  a  deliberate 
shot  from  an  assassin's  gun?  It  is  manifest  that  more 
units  of  things  and  more  magnitudes  of  our  events  in  the 
complex  are  involved  than  a  first  thought  would  suggest. 
We  have  actually  a  congeries  of  laws,  all  operating  in 
the  act  called  the  dying  of  a  person,  but  appearing  to  us 
as  conditions  which  are  mainly  slighted  or  not  noticed 
at  all.     On  the  one  hand,  then,  conditioning  factors  may 


186  A  CRITIQUE  OF  ECONOMICS 

be  pointed  out  as  causes  of  a  change  in  a  select  chain  of 
events,  while  on  the  other  hand  they  may  be  ignored  en- 
tirely, our  interest  centering  in  but  a  single  culmination 
observed  as  surcease  of  life,  that  is  of  motion  or  thinking 
or  feeling  or  breathing,  etc. 

But  this  flaw  in  the  argument  for  a  plurality  of  causes 
in  contradistinction  from  a  singleness  of  effect  should  aid 
us  in  gauging  again  the  subjective  aspects  of  causation, 
as  well  as  the  possibility  of  calling  the  correlates  in  a  law 
of  nature  either  cause  or  effect.  The  hypothetical,  arti- 
ficial nature  of  a  causal  imputation  is  indeed  undeniable. 
"We  must  always  assume  a  considerable  amount  of  pre- 
liminary information  as  to  the  nature  and  limits  of  the 
field  over  which  the  cause  is  to  be  sought.  That  is,  the 
claimants  to  that  post  must  be  supposed  to  be  finite  in 
number,  and  to  have  all  their  names  previously  submitted 
to  us,  so  that  we  have  merely  the  task  of  choosing  amongst 
their  respective  qualifications.  In  fact,  we  must  assume 
more  than  this ;  for  unless  the  possible  causes  are  ex- 
tremely few  in  number — so  that  all  their  combinations  can 
be  taken  into  account,  we  must  take  it  for  granted  that 
we  have  some  indications  given  to  us  as  to  which  are  the 
serious  claimants  whose  qualifications  only  have  to  be 
carefully  tested.'*  ^^  Hence  "the  greater  the  scope  of 
existential  knowledge,  the  greater  is  the  likelihood  of  our 
being  able  to  pronounce  events  causally  dependent  or  inde- 
pendent." ^^  In  most  cases  "those  elements  which  we  are 
apt  to  regard  as  separate  antecedents,  isolating  them  and 
representing  them  by  means  of  letters,  are  largely  the 
results  of  our  own  more  or  less  artificial  construction  by 

"Venn,  J.,  "Principles  of  Empirical  or  Inductive  Logic,"  p.  431. 
See  also  Schiller,  "Formal  Logic,"  pp.  281,  and  293-96. 
»  Keynes,  J.  M.,  "Treatise  on  Probability,"  p.  277. 


LAW  AND  CAUSATION  187 

abstraction.  There  is  nothing  strictly  corresponding  to 
them  in  nature."  ^^  Or  in  the  words  of  still  another 
author:  "What  the  'cause'  of  an  event  is  (or  is  called) 
depends  on  the  speaker's  interest  and  the  purpose  of  his 
inquiry."  ^^  "The  choice  of  cause  depends  upon  the  social 
interests"  of  people,  and  we  "make  a  choice  determined  by 
the  frequency  or  the  interest  of  certain  conditions  in  com- 
parison with  others."  ^^ 

So  far  so  good,  then.  But  the  subjectivity  of  causal 
relations  may  be  shown  also  by  the  delimitation  of  time 
units  within  which  causality  is  held  to  reign.  We  admit 
for  instance  that  sometimes  the  interval  is  so  small  as  to 
be  imperceptible.  Whether  friction  is  a  consequent  of 
motion,  or  is  a  concomitant,  strictly  speaking,  who  will 
decide?  Whether  the  explosion  does  really  take  place 
after  the  ignition  of  the  powder,  or  is  part  of  this  act, 
who  cares  to  measure  the  lapse  of  time  in  between?  The 
question  will  possibly  be  deemed  an  unanswerable  one. 

But  more.  Our  time  units  in  sequences  are  artificial  in 
two  principal  respects,  viz.,  first  as  an  absolute  span  of 
time  within  which  the  law  takes  place,  and  secondly  as  the 
intervals  between  what  is  called  cause  and  effect.  We 
decide  arbitrarily  upon  the  temporal  framework  within 
which,  say,  a  thunderstorm  occurs,  pointing  to  a  "begin- 
ning" and  an  "end";  and  we  also  set  limits  consciously 
or  unconsciously  to  the  quantity  of  time  that  may  separate 
a  lightning  bolt  from  a  thunder-clap.  Always  the  present 
moment  becomes  a  terminus  ah  quo.  Regularly  we  refuse 
to  trace  our  series  of  events  beyond  a  certain  point  of 
the  future.     Why  a  thunderstorm  begins  here  and  ends 

**  Venn,  "Logic,"  p.  77. 

^Schiller,  "Formal  Logic,"  p.  277. 

"  Enriques,  F.,  "Problems  of  Science,'  pp.  142. 


188  A  CRITIQUE  OF  ECONOMICS 

there  it  is  impossible  for  us  to  say,  except  that  motion 
and  commotion,  sense  data  heaped  up  in  a  short  stretch 
of  time,  impress  us  as  a  logical  unfoldment  of  the  phe- 
nomenon in  question.  That  cycles  of  such  event-complexes 
might  be  interlaced,  that  the  intervals  between  two  suc- 
cessive storms  might  constitute  a  unit  for  causally  relat- 
ing its  components,  does  not  occur  to  us.  Yet  we  may 
profit  by  asking  something  like  this :  Is  the  climate  a 
cause  or  an  effect  of  the  contour  of  the  land  where  it 
prevails  ?  Which  comes  first  and  which  last,  if  you  please  ? 
Pondering  a  little  on  this  we  shall  have  to  admit  that 
either  or  both  will  do  for  a  reply.  Looked  at  from  one 
viewpoint  the  weather  alters  the  landscape,  acting  by 
erosion  and  corrosion,  so  that  mountains  are  reduced 
to  valleys,  and  the  shore  may  be  built  up  from  alluvial 
deposits.  But  it  is  equally  fair  to  point  out  that  topog- 
raphy makes  climate,  since  altitude  and  floral  conditions 
and  contour  and  soil  qualities  regulate  radiation,  con- 
densation, sky-conditions,  temperature,  etc.  Dependent 
upon  how  we  select  our  time  units,  one  or  the  other  set 
of  facts  appears  as  cause.  In  the  realm  of  physical  phe- 
nomena a  reversal  may  thus  be  defended.  All  is  either 
cause  or  eff'ect,  or  neither. 

Causation  and  Correlation. — That  of  course  brings  up 
a  somewhat  different  question  to  which  we  may  now 
turn  in  order  to  complete  our  study  of  law  and  causa- 
tion. Namely,  we  are  bound  to  ask :  Does  causation  also 
rule  in  the  world  of  non-physical  events,  for  happenings 
such  as  the  biologist,  psychologist,  and  social  scientist 
makes  his  specialty.?  Is  a  reversal  possible  here  too.''  And 
if  we  treat  causation  simply  as  another  way  of  expressing 
law,  shall  we  draw  a  hard  and  fast  line  between  natural 


LAW  AND  CAUSATION  189 

and  other  sciences?    What  seems  a  right  answer  to  these 
queries  ? 

Now,  in  the  first  place  it  should  be  definitely  understood, 
since  agreement  on  this  point  has  been  reached  long  ago, 
that  no  conflict  can  be  trumped  up  between  freedom  of 
the  will  and  causal  determinism.  For  certain  purposes, 
and  not  least  of  all  the  theological,  the  human  will  may  be 
treated  as  a  distinct  entity,  as  a  vital  force,  that  is  part 
of  a  larger  personality  and  rises  far  above  the  level  of 
causal  happenings.  Undoubtedly  there  is  a  sense  in  which 
man  is  a  willing  being,  an  independent  agent  who  directs 
his  conduct  as  he  sees  fit  and  shapes  the  routine  of  ex- 
perience according  to  his  intentions.  It  is  altogether  fair 
that  we  take  this  view  of  the  question  at  times,  if  only  to 
provide  a  ground  for  an  abstract  ethics  that  serves  to 
acquaint  people  with  possibilities  otherwise  unsuspected. 
Illusions  surely  are  often  as  useful,  as  necessary  to 
achievement  as  the  plainest  of  truths !  However,  for  the 
scientist  the  will  cannot  figure  as  a  power  exempt  from 
the  laws  governing  events  in  general.  For  him  it  is  clear 
that  will  is  hut  a  particular  way  of  rating  the  variahility 
that  marks  organic  matter  and  human  beings  in  par- 
ticular. From  a  scientific  standpoint  will  is  one  aspect 
of  a  situation  whose  components  are  as  capable  of  cor- 
relation, as  intimately  bound  up  with  physical  forces,  as 
the  lowest  forms  of  plant  and  animal  life  for  which  con- 
sciousness may  be  said  not  to  exist  at  all.  To  me  as 
doer  my  will  is  real.  To  the  spectator  also  it  represents 
a  propelling  force  whose  role  is  unique  in  the  cosmos.  But 
seen  from  another  angle  will  is  only  a  term  for  a  wide 
range  of  variations,  for  adaptability  to  constants  in  the 
physical  world.     To  will,  thus,  is  to  act  rather  than  to 


190  A  CRITIQUE  OF  ECONOMICS 

plan,  and  our  degree  of  freedom  must  be  measured  by 
the  trend  and  scope  of  changes  which  constitute  human 
history  itself. 

In  the  second  place  the  causality  of  correlations,  as 
compared  with  exact  laws  of  nature,  is  obscured  by  the 
indefiniteness  of  the  temporal  and  spatial  units  usually 
involved.  In  our  laboratory  work  we  deal  with  fairly 
definite  spans  of  time,  both  in  conducting  the  experi- 
ment as  a  whole,  and  in  allotting  limits  to  the  intervals 
connecting  a  given  sequence.  But  the  more  we  pass 
from  physical  facts  to  the  social  or  historical,  the  vaguer 
the  boundary-lines  assigned  to  our  correlations.  Cor- 
respondingly our  idea  of  cause  or  effect  changes  as  our 
time  units  change.  A  war  for  instance:  What  are  its 
causes  in  the  opinion  of  discerning  men.^*  Leaving  aside 
the  fact  that  the  very  nature  of  our  material  permits  us 
to  choose  a  large  variety  of  data  for  a  grouping  into  co- 
existences or  sequences,  we  are  further  obliged  to  grant 
that  much  depends  upon  whether  we  take  a  short  or 
long-time  viewpoint.  To  contemporaries  the  causes  are 
probably  in  plain  sight.  They  Tctiow  that  certain  per- 
sonalities or  institutions  or  creeds  or  foreign  policies 
or  incidents  of  a  tangible  sort  are  responsible  for  the 
catastrophe.  They  have  no  hesitation  to  point  a  finger 
at  the  casus  belli  and  to  date  the  commencement  of  the 
war  from  those  near-at-hand  events.  Not  that  the  op- 
posing parties  will  agree  even  then — for  the  force  of 
bias  in  such  matters  is  axiomatic ! — but  at  any  rate  each 
side  will  have  its  explanation,  selecting  details  that  the 
popular  imagination  no  less  than  that  of  the  trained  ob- 
server may  seize  upon.  But  let  a  few  decades  or  a  hun- 
dred years  go  by,  and  the  values  are  transformed  so  as 


LAW  AND  CAUSATION  191 

to  te  unrecognizable.  What  once  seemed  a  prime  factor 
now  has  no  standing  whatever ;  what  formerly  was  not  even 
noticed,  now  looms  up  as  an  event  of  cardinal  importance. 
Thus  the  same  set  of  antecedents  get  a  different  causal 
rating,  and  thus  different  events  are  brought  into  cor- 
relation from  one  era  to  the  next,  until  perhaps  after 
centuries  a  general  consensus  of  opinion  is  reached.  Cau- 
sation thus  proves  to  be  in  fact  what  the  philosopher  has 
known  it  to  be  in  theory,  namely,  a  way  of  ordering  events 
so  that  they  invariably  or  with  a  tolerable  degree  of 
regularity  recur  together.  Even  for  the  historian  it  is 
possible  to  establish  regularities  if  he  reduces  event-com- 
plexes to  the  primary  relations  of  their  physical  or 
psychic  components;  and  for  the  social  scientist  the 
search  for  typical  transactions  is  of  course  a  first  duty. 
Or  if  we  deny  the  historian  the  right  to  hunt  for  types 
of  events,  we  must  yet  allow  that  all  event-complexes  may 
be  correlated  by  sociologists  or  economists  for  the  pur- 
pose of  finding  more  or  less  perfect  recurrences.  It  will 
depend  upon  the  degree  of  quantitative  or  qualitative 
correlation  whether  causality  is  attributed  to  it  or  not; 
but  that  is  not  to  deny  the  possibility  of  such  a  causal 
nexus. 

The  Trmke-up  of  the  events  themselves  is  however,  in 
the  third  place,  equally  significant  for  our  traditional 
distinction  between  causal  and  non-causal  events.  For 
owing  to  the  complexity  of  the  units  correlated  by  social 
scientists  or  biologists  or  psychologists  the  basis  is  lacking 
for  that  one-to-one  correspondence  that  apparently  per- 
vades the  whole  physical  world.  As  we  pass  from  non- 
organic to  organic  phenomena,  as  we  pass  from  floral  or 
faunal  facts  to  the  social  in  their  multitudinous  aspects, 


192  A  CRITIQUE  OF  ECONOMICS 

we  are  compelled  to  reckon  with  a  variability,  with  com- 
binations of  events,  each  counting  as  a  single  unit  for 
our  requirements,  that  make  their  reduction  to  indi- 
visibles or  "atoms"  impossible.  The  generic  difference 
between  animate  and  inanimate  elements  is  quite  incontest- 
able. The  compound  nature  of  the  events  which  we  press 
into  a  formula  for  generalization  suggests  itself  on  first 
thought.  To  correlate  sizes  of  the  leaves  on  a  tree,  or 
the  weather  with  the  migration  of  birds  or  with  human 
wanderings,  or  prices  with  types  of  social  structure,  or 
the  distribution  of  plants  with  insect  life — to  do  this  is 
to  work  with  units  which  manifestly  are  resolvable  into 
much  smaller  and  simpler  ones.  The  social  investigator 
would  concede  this  no  less  than  a  physiologist  or  chemist. 
But  this  being  so  it  follows  that  our  sense  of  the  non- 
causal  character  of  such  correlations  is  merely  due  to 
ignorance.  We  admit  that  the  mechanistic  view  is  not 
directly  applicable.  We  see  difficulties  aside  from  the 
instability  which  marks  organic  behavior  or  the  expressions 
of  a  social  group.  We  are  confronted  not  only  with  an 
indeterminate  number  of  variables,  but  likewise  with  many 
unknown  qualities  and  quantities,  some  of  them  again  com- 
pounds, others  imaginable  as  raw-materials  for  natural 
science.  We  say  we  cannot  locate  the  "causes.'^  We 
perhaps  argue  that  no  causal  connection  exists,  meaning 
that  the  compounds  surveyed  do  not  evince  the  kinds  of 
reciprocity,  the  measurable  quantitative  interdependence, 
inherent  in  the  units  of  physics.  Of  course,  so  we  should 
put  it.  But  since  cause  and  effect  in  any  case  are  only 
names  for  sets  of  events  within  a  stated  law  of  nature, 
since  with  one  exception  to  be  mentioned  later  we  may 
arrange  our  time-units  so  as  to  make  cause  and  effect 


LAW  AND  CAUSATION  193 

interchangeable  as  units  within  that  law  of  nature,  there 
is  no  reason  for  pitting  physical  against  social  events,  as 
if  they  were  irreconcilables.  Nor  need  we  waive  the 
right  of  further  reducing  our  units  in  the  groups,  so  that 
a  causal  attribute  may  somehow  be  revealed  in  our  cor- 
relations. 

Or  to  state  this  thought  more  concisely:  We  may  con- 
sider an  event-complex  explained  in  so  far  as  we  have 
referred  it  to  known  "causal"  values  obtaining  for  the 
smaller  units  out  of  which  the  complex  is  composed.  Thus 
if  we  wonder  whether  a  high  positive  coefficient  of  correla- 
tion between  the  educational  status  and  the  criminal 
record  of  a  country  can  be  causal,  we  need  only  to  define 
our  terms  education  and  crime,  and  then  search  into  hu- 
man traits  and  actions  that  are  more  or  less  regularly 
connected.  Or  we  may  trace  these  ideas,  motives,  and 
habits  of  education  and  crime  further  back  to  biochemical 
groups  known  in  physiology;  or  again  we  may  go  from 
sociological  data  to  the  biological,  and  thence  to  perhaps 
the  physico-chemical.  In  some  such  way  we  actually  do 
reason,  and  this  regress  back  to  the  simpler  units  handled 
by  natural  scientists  is  all  that  can  be  done  to  establish 
a  causal-nexus  in  our  statistical  social  correlations.  To 
say  that  they  are  not  causal  is  to  contrast  their  compound 
units  with  the  regularity  of  the  simpler  elsewhere,  which 
we  have  arbitrarily  beforehand  designated  as  causes  or 
effects. 

Whether  anything  is  gained  by  this  regression  is  an- 
other matter.  It  may  appear  that  in  so  converting  cor- 
relations into  physical  items  we  have  really  changed  the 
nature  of  our  inquiry  and  lost  what  we  originally  set  oui 
to  do.     But  evidently  some  such  system  of  indirect  link- 


194  A  CRITIQUE  OF  ECONOMICS 

age  may  be  used  to  interlace  any  class  of  events  with  a 
second  or  third  or  tenth,  until  physical  "causality'* 
emerges.  Day  and  night  thus  are  as  causal  as  any  consti- 
tuents of  a  law  of  nature.  To  pronounce  this  succession 
non-causal,  as  logicians  have  done  again  and  again,  is 
to  misunderstand  the  hypothetical,  pragmatic  character 
of  causation  in  general.  A  great  many  correlations  are 
"empirical"  ^^  laws  in  that  their  final  units  have  not  been 
disclosed.  We  see  regularities  and  cannot  trace  them  back 
to  known  regularities  of  other  groups  of  events ;  or  we 
are  struck  with  the  imperfect  degree  of  stability,  with  the 
variations  in  detail  that  bid  us  to  proceed  carefully  before 
formulating  an  exact  law  of  nature.  Such  distinctions 
of  relative  constancies,  of  groups  of  recurrences  accord- 
ing to  kinds  and  variability  of  their  units  are  quite  neces- 
sary, but  they  should  not,  they  cannot,  prejudge  the  case 
for  causation.  Causality  applies  either  to  correlations 
as  well  as  to  laws  of  the  physical  sort,  or  else  we  admit 
it  to  be  a  convenient  term  merely  which  helps  us  to  dif- 
ferentiate the  elements  in  a  law  or  correlation,  the  tem- 
poral and  spatial  units  for  this  purpose  being  varied  as  we 
see  fit. 

But  wiU  this  two-sided  reading  of  our  successions  of 
physical  events  oblige  us  to  extend  it  also  to  a  correlation 
of  physical  with  non-physical  events?  And  furthermore, 
what  becomes  of  chance  correlations  if  we  repudiate  so 
uncompromisingly  the  old  notion  of  cause  and  effect?  A 
few  words  on  these  topics  will  not  be  inappropriate,  al- 
though they  can  add  nothing  to  the  essentials  already 

brought  out. 

®For  definitions  of  empirical  law  see  Mill,  "Logic,"  Book  III,  ch. 
16;  Bain,  A.,  "Logic,"  1874,  p.  333;  Hibben,  J.  G.,  "Logic,"  1904, 
p.  351. 


LAW  AND  CAUSATION  195 

As  to  the  reversibility  of  events,  there  should  be  no 
doubt  about  the  difference  between  connecting  physical 
events  alone,  and  linking  them  with  what  are  called  psychic 
or  social  events.  And  of  course,  the  correlation  of  psychi- 
cal or  social  events  with  each  other  is  also  a  distinct  prin- 
ciple. Thus,  if  we  ask  ourselves  whether  density  of  popu- 
lation and  climatic  conditions  may  in  any  way  be  causally 
related  (giving  the  word  causal  its  traditional  meaning), 
the  answer  will  be:  Certainly.  It  seems  reasonable  to 
attribute  facts  of  population  to  facts  of  climate,  and  so 
men  have  done  often  enough.  But  may  we  then  go  from 
population  as  a  cause  to  climate  as  an  effect,  in  the  sense 
that  we  have,  awhile  ago,  made  either  topography  or  the 
weather  both  cause  and  effect.?  Now,  in  so  viewing  the 
problem  we  are  reminded  that  a  notable  difference  exists. 
We  shall  argue:  The  climate  surely  may  account  for 
demographic  data,  but  these  latter  have  no  bearing  upon 
the  meteorological  data.  This  seems  assured.  But  what 
is  the  reason  .'^ 

We  must  answer  that  life  phenomena  do  involve  a  power 
for  variation,  a  range  of  adaptation  as  the  biologist  or 
psychologist  would  say,  which  make  a  dual  tracing  of  an- 
tecedent-consequent impossible.  There  is  a  real  and  im- 
portant gap  between  organic  and  inorganic  facts,  or  at 
any  rate  between  the  latter  and  the  higher  forms  of  life. 
The  units  of  our  correlation  of  vital  phenomena — biologi- 
cal or  sociological — are  effects  only,  and  not  causes  in 
our  illustration  because  of  their  very  complexity  and  evo- 
lution out  of  simpler  elements  prevailing  in  the  realm  of 
physics  and  chemistry.  There  is,  in  other  words,  a  prin- 
ciple of  evolution  from  electrons  to  ideas  which  must  be 
understood  before  the  line  between  dual  and  single  causa- 


196  A  CRITIQUE  OF  ECONOMICS 

tion  can  be  resolutely  drawn.  We  must  realize  the  deriva- 
tion of  the  complex  units  of  statistics,  or  say  of  the  life- 
sciences,  from  the  irreducibles  of  natural  science,  before 
seeing  the  consistency  of  our  distinction.  Any  one  set  of 
physical  events  may  be  either  cause  or  effect,  but  as  be- 
tween such  and  psychological  or  socio-economic  facts,  we 
shall  have  to  grant  that  psychics  has  no  influence  upon 
physics.  Or,  rather,  since  this  is  not  strictly  true,  let  us 
say  that  within  any  one  organism  psychics  and  physics  are 
linked  by  a  dual  causality  so  that  each  group  of  facts  may 
appear  as  either  cause  or  effect.  But  otherwise  physics 
acts  only  on  psychics,  and  not  vice  versa ;  or  physics  acts 
only  on  physics,  or  psychics  only  on  psychics,  possibly 
with  the  accompaniment  of  physical  changes  in  the  organ- 
isms concerned.  But  that  is  neither  here  nor  there.  The 
main  principle  to  seize  upon  is  the  limit  within  which  caus- 
ality is  reversible.  And  aside  from  that,  we  might  note 
also  that  a  plurality  of  causes  will  prevent  us  from  attrib- 
uting demographic  facts  to  climate  alone,  while  on  the 
other  hand  we  should  be  willing  to  acknowledge  a  causal 
connection  between  variations  in  climate  and  population 
features  taken  strictly  in  a  physical  sense.  It  is  merely 
the  immeasurable  superiority  of  cosmic  forces  over  the 
physical  quantities  represented  by,  and  interacting  within, 
individuals  and  their  aggregates  that  bids  us  to  read  caus- 
ation here  in  one  direction.  We  ascribe  functions  solely 
to  climate  which  on  a  minor  scale  exist  also  for  the  physics 
of  social  life,  and  in  precisely  the  same  causal  sense. 

All  this  is  quite  understandable  and  in  accord  with  our 
next  remark  that  chance  correlations  implied  or  explicit 
are  impossible  from  a  scientific  standpoint.  The  word 
"chance'^  clearly  is  a  misnomer  if  a  Uniformity  of  Nature 


LAW  AND  CAUSATION  197 

prevails,  and  is  wrong  even  when  referred  to  specific  causal 
connections  such  as  are  embodied  in  laws  of  nature  or  in 
ordinary  statistical  correlations.  There  must  be  causa- 
tion everywhere,  or  else  it  is  nowhere.  Since  cause  and 
effect  mean  merely  regular  connections  of  designated 
classes  of  events,  all  regularities  meeting  certain  stand- 
ards must  be  causal.  But,  of  course,  we  may  measure  de- 
grees of  regularity  of  the  recurrence  of  groups  of  events, 
and  deny  "causality"  to  some  of  them  in  so  far  as  the 
degree  is  below  a  fixed — or  more  or  less  fixed — minimum. 
That  is  entirely  possible  and  indeed  represents  the  actual 
state  of  things.  The  proportionate  quantitative  changes 
of  two  or  more  homogeneities  that  do  not  repeat  them- 
selves with  sufficient  uniformity  we  decline  to  call  real  cor- 
relations or  causal  connections.  Statistical  induction,  in 
such  cases,  is  out  of  place.  Our  coefficients  are  said  to  be 
unsatisfactory  because  too  variable  or  too  low.  But  this 
is  not  to  deny  causation  in  general,  nor  to  accept  popular 
opinion  on  "accidental"  happenings. 

Conclusions. — Our  conclusion  on  the  whole  subject  thus 
will  be  as  follows.  First,  law  and  correlation  have  much 
in  common  and  may  be  treated  under  one  heading, 
even  though  differences  in  degree  will  become  conspicu- 
ous. Second,  causation  is  for  both  or  for  neither  ac- 
cording to  viewpoint  and  definition  of  the  term.  Third, 
a  subjective  element  permeates  all  generalizations  of  sci- 
ence, but  this  forms  no  bar  to  the  objective  reality  of  a 
substratum  of  facts  out  of  which  the  human  mind  builds 
its  laws  of  nature.  And  fourth,  the  differences  between 
law  and  correlation  call  for  differences  in  method  which 
it  will  now  be  our  task  to  examine  before  stating  the 
methodology  of  economics  in  particular. 


CHAPTER  EIGHT 
THE  METHODS  OF  SCIENCE 

Preliminary  Observations. — ^As  remarked  before,  in  dis- 
cussing the  methods  of  science  it  is  well  to  distinguish 
between  inference  on  the  one  hand,  and  measurements  on 
the  other.  Inference  is  not  something  peculiar  to  scien- 
tists. On  the  contrary,  it  is  the  common  property  and 
practice  of  all  people,  being  a  part  of  human  nature  and 
an  element  in  all  social  life.  Indeed,  if  we  wish  to  give  a 
relative  rating  to  these  two  phases  of  scientific  progress 
there  is  no  doubt  that  for  the  earlier  stages  of  history 
mere  inference  must  have  been  much  more  important  than 
those  exact  measurements  which,  in  historical  times,  have 
helped  to  make  us  masters  of  our  natural  environment.  At 
the  beginning  everything  depended  on  a  rough  apprecia- 
tion of  differences  and  resemblances,  that  is,  on  man's 
reasoning  by  analogy  and  on  induction  by  enumeration. 
Method  in  the  larger  sense  is  this  use  of  inference  for  pur- 
poses of  adaptation  to  practical  requirements. 

In  the  narrower  sense,  however,  we  must  define  method 
as  a  more  or  less  clearly  marked  procedure  for  discovering 
fixed  relations  between  things,  this  procedure  necessitat- 
ing often  the  use  of  instruments  for  measuring  facts  and 
their  changes.  Any  methodology  of  science  therefore  must 
take  notice  of  three  distinct  sets  of  facts,  viz.,  of  infer- 

198 


THE  METHODS  OF  SCIENCE  199 

ence  in  several  aspects,  of  certain  types  of  measurement 
by  which  different  kinds  of  subjects  are  made  a  study  for 
science,  and  of  the  results  attained  by  science,  particu- 
larly as  laws  of  nature  or  as  causal  relations  among  speci- 
fied events.  Methods  for  different  sciences  may  vary  in 
so  far  as  the  points  of  emphasis  differ,  and  differences  in 
subject-matter  and  in  aim  bid  scientists  to  rely  upon  one 
scheme  of  measurement  or  another;  but  inference  is 
everywhere  the  same.  To  use  in-  and  de-duction  scientifi- 
cally is  simply  to  turn  both  to  better  account  than  a  com- 
mon-sense viewpoint  could  promise. 

The  methods  of  science  resolve  themselves  on  closer 
inspection  into  three  standard  ones,  unless  indeed  a  mere 
classification  of  properties,  because  carefully  undertaken 
and  sufficiently  complete  to  cover  all  distinguishable  fea- 
tures, is  itself  called  a  method.  If  we  assent  to  this  plan 
then  many  sciences  will  of  course  work  independently  of 
measurement  in  the  precise  sense  of  the  word.  But  other- 
wise there  is  good  ground  for  observing  a  threefold  divi- 
sion, the  first  being  £XT)erimentation,  the  second  statistics^^ 
and  the  third  reflection.  In  other  words,  barring  the 
purely  classificatory  disciplines  such  as  botany  was  until 
the  last  century,  sciences  reach  their  conclusions  either 
through  experiment,  or  through  a  counting  and  assembling 
of  large  numbers  of  like  facts,  or  through  an  introspective 
analysis  which,  though  resembling  in  part  the  first  two 
methods,  has  peculiarities  of  its  own.^ 

Aids  to  Science. — Experimentation  has  been  called  the 

method  most  characteristic  of  physics  and  chemistry,  and 

this  is  undoubtedly  true.     It  must  however  be  noted  at  the 

*  For  a  conventional  analysis  of  scientific  method  see,  e.g.,  Lodge, 
R.  C,  "Modern  Logic,"  1920,  ch.  18,  or  Sellars,  R.  W.,  "Essentials 
of  Logic,"  1917,  chs.  16-18. 


200  A  CRITIQUE  OF  ECONOMICS 

outset  that  at  least  part  of  its  work  Is  being  done  just  as 
well  by  the  statistician  or  the  reflective  thinker,  although 
outwardly  this  does  not  so  appear.  Namely,  if  it  is  true 
of  natural  sciences  that  they  depend  largely  on  observa- 
tion and  trial  and  error,  this  is  no  less  true  of  other  fields 
of  inquiry.  Indeed,  it  follows  from  the  nature  of  human 
thought,  and  from  the  principal  facts  of  reasoning,  that 
observation  and  trial  and  error  antedate  the  methods  of 
measurement  now  most  generally  associated  with  exact 
science. 

What  observation  involves  is  well  known.  We  have  to 
deal  here  with  men  who,  whether  scientists  or  not,  use 
their  senses  to  perceive  events  occurring  outside,  to  com- 
pare them  as  to  resemblances  and  differences,  to  classify 
attributes  or  events  on  this  principle  of  likeness  and  un- 
likeness,  and  to  remember  as  much  of  the  situation  as 
seems  necessary  for  certain  practical  or  purely  scientific 
ends.  In  the  last  analysis  observation  is  a  crude  kind  of 
abstraction.  It  is  attention  directed  to  a  select  group  of 
data,  of  happenings  or  appearances,  which  we  try  con- 
sciously or  unconsciously  to  bring  into  an  interdependence 
different  from  that  of  time  or  space  alone.  We  start 
with  comparison  and  distinctions  guided  by  our  senses, 
but  quite  usually  wind  up  with  a  judgment  of  causal  rela- 
tions or  even  with  generalizations  that  do  not  in  tenor  or 
purpose  differ  materially  from  those  of  science.  But  one 
fact  deserves  to  be  noted  in  setting  observation  apart 
from  scientific  work,  namely  that  the  former  relies  exclu- 
sively upon  sensation  and  perception,  so  that  the  limits 
of  our  knowledge  derived  purely  from  observation  are 
proverbially  unsatisfactory.  We  may  of  course  remem- 
ber much  of  what  we  have  observed,  and  so  extend  greatly 


THE  METHODS  OF  SCIENCE  201 

the  range  of  our  analysis  by  combining  images  centrally 
aroused  with  the  picture  before  our  very  eyes ;  but  this  is 
still  a  process  differing  in  essence,  and  not  simply  in  de- 
gree, from  what  the  scientist  aims  at. 

Trial  and  error  is,  in  this  respect,  no  better  than  obser- 
vation, for  it  too  relies  chiefly  upon  sense  experiences  at 
first  hand.  Whether  we  turn  to  a  practical  problem  that 
calls  for  immediate  solution  in  the  course  of  our  everyday 
needs  and  interests,  or  whether  our  experiment  deals  with 
topics  remote  from  the  possibilities  of  practical  applica- 
tion, the  primacy  of  perception  and  the  absence  of  gener- 
alizing concepts  is  apparent  in  both  situations.  The  com- 
mon-sense flavor  of  trial  and  error  is  a  characteristic  that 
appeals  to  all  and  correspondingly  links  it  up  closely  with 
mere  observation. 

It  differs  from  observation  however  in  that  we  under- 
take purposely  certain  variations  so  as  to  find  a  solution 
of  our  difficulty,  that  is,  to  trace  what  in  logic  and  popu- 
lar parlance  both  is  called  cause  and  effect.  We  look  for 
correlations  of  a  particular  sort.  We  wish  to  obtain  light 
on  facts  that  constitute  a  departure  from  the  ordinary. 
Or  in  other  words,  in  trial  and  error  we  are  usually  con- 
fronted with  a  new  turn  of  events  to  which  we  desire  to 
adjust  ourselves  perhaps  on  the  instant.  The  facts  to  be 
appraised  and  correlated  are  practical  in  most  cases,  al- 
though not  necessarily  so.  Furthermore,  in  meeting  this 
contingency,  we  have  neither  time  nor  inclination  to  ex- 
pand our  problem,  that  is,  to  generalize  consciously  so  as 
to  unravel  a  skein  of  relations  indicative  of  laws  of  nature. 
To  find  laws  is  not  primarily  the  function  of  the  matter- 
of-fact  man  who  proceeds  by  trial  and  error.  The  con- 
ditions are  given  in  the  outside  world  and  are  not,  in  the 


202  A  CRITIQUE  OF  ECONOMICS 

majority  of  cases,  reducible  to  anything  like  an  orderly 
array  of  selected  facts.  No  desire  arises  to  measure  care- 
fully the  quantitative  changes  that  might  by  a  scientist 
be  discovered.  The  aim  is  to  overcome  obstacles,  to  find 
out  why  the  way  in  which  we  have  worked  before  does  not 
give  the  wished-for  result  this  time.  Trial  and  error  thus 
is  bent  on  measuring  the  effect  of  interferences,  of  sub- 
tracting from  the  whole  situation  that  element  which  shall 
be  amenable  to  our  usual  methods.  Novelty  has  to  be 
studied  and  resolved  into  familiar  connections.  We  pro- 
ceed haphazardly,  without  studied  hypothecation  or  the 
use  of  instruments  other  than  such  tools  as  a  working- 
man  would  use  to  turn  out  his  product.  Instead  of  fol- 
lowing habits  we  rely  upon  our  resourcefulness.  We  are 
led  involuntarily  to  experimentation,  and  like  animals, 
whose  ingenuity  is  limited  and  not  easily  wrought  into  a 
systematic  adaptive  scheme,  we  toy  with  the  facts  at 
random,  guided  only  in  a  meager  degree  by  previous  ex- 
perience or  by  suggestions  that  approach  science  in  their 
definiteness. 

Now,  while  these  two  preliminary  stages  of  method  are 
common  to  all  three  standard  methods — or  rather,  though 
each  method  involves  observation  and  trial  and  error  in 
some  aspect — experimentation  proper  is  greatly  superior 
to  them.  For  experimentation  is  that  kind  of  research 
which  achieves  most  by  methodical  measurements  and  ad- 
ditions or  subtractions  to  and  from  a  complex  of  events, 
things  and  attributes  being  arranged  expressly  for  that 
purpose.  Experimentation,  thus,  is  a  variety  of  research 
which  does  what  trial  and  error  scarcely  ever  presumes 
to  attempt:  It  selects  its  data.  It  arranges  means  by 
which  to  control  the  changes  in  these  data.    It  resorts  to 


THE  METHODS  OF  SCIENCE  203 

the  use  of  instruments  by  which,  directly  or  indirectly, 
measurements  of  maximum  nicety  are  made  possible.  It 
varies  the  data  under  investigation  at  will,  as  much  and 
as  often,  as  regularly  or  as  irregularly,  as  seems  expedi- 
ent. It  starts  with  assumptions  usually,  or  makes  use  of 
them  some  time  during  the  act  of  research.  It  endeavors 
to  ascertain  permanent  relations,  thus  projecting  itself 
beyond  the  realm  of  sense  into  that  of  concepts  and  the 
imagination.  It  creates  difficulties  rather  than  dodging 
them.  It  puts  itself  in  the  service  of  others,  of  mankind 
in  general.  And  finally  it  tries  to  unify  an  immense  diver- 
sity of  laws  or  theories  into  a  system.  Experimentation 
therefore  is  the  most  prominent  of  scientific  methods,  and 
the  gateway  through  which  men  have  entered  into  a  king- 
dom of  thought  and  economic  treasures  that  grows  with 
each  successive  generation. 

The  use  of  standards  is  one  of  the  characteristics  of 
science,  and  must  be  regarded  as  of  primary  significance 
particularly  for  natural  sciences.  Physics  and  chemistry, 
astronomy  and  biology,  are  fields  in  which  the  use  of 
standards  is  most  obvious  and  decisive,  but  other  sciences 
also  have  them,  although  a  notable  difference  appears  at 
once.  For  while  natural  sciences  detach  their  standards 
from  their  subject-matter,  giving  them  an  objectivity  that 
is  genuine  and  beyond  cavil  except  perhaps  from  a  philo- 
sophical viewpoint,  social  sciences  must  in  part  reckon 
with  norms  which  themselves  constitute  part  of  the  data 
to  be  measured,  so  that  complications  arise  that  a  physi- 
cist knows  nothing  of. 

However,  even  for  natural  science  two  facts  stand  out 
in  plain  view;  namely,  first,  that  relativity  is  a  basic 
postulate  as  well  as  a  fact  empirically  verifiable,  and  sec- 


204  A  CRITIQUE  OF  ECONOMICS 

ondly  that  all  standards  anchor,  at  bottom,  in  a  few  pri- 
mary concepts  which  in  turn  are  no  more  than  definitions. 
Thus,  on  the  one  side,  we  might  learn  from  the  now  current 
speculations  about  Specific  Relativity,  quoting  the  words 
of  Einstein,  that  "there  is  no  such  thing  as  an  indepen- 
dently existing  trajectory  (path-curve),  but  only  a  tra- 
jectory relative  to  a  particular  body  of  reference."  ^  In 
this  sense  all  measurements  presuppose  a  standard  by 
which  others  find  their  value;  and  this  meaning  of  the 
relative  worth  of  scientific  standards  would  be  as  sug- 
gestive for  social  sciences  as  for  the  physical.  But  on  the 
other  side  we  must  remember,  more  especially,  that  the 
great  majority  of  standards  are  compounded  of  simpler 
ones  which  themselves  go  back  to  definitions  arbitrarily 
given,  no  matter  how  "exact"  our  results.  Thus,  to  illus- 
trate by  one  example:  If  we  open  a  text  on  physics  at 
random,  happening  to  strike  the  term  "kilowatt,"  and  ask 
ourselves  what  this  means,  we  shall  get  an  answer  some- 
what as  follows.  To  wit,  the  kilowatt  is  a  thousand  watts, 
and  the  watt  "the  power  possessed  by  an  electric  current 
of  one  ampere  under  a  pressure  of  one  volt;  this  latter 
being  the  electromotive  force  which  will  cause  a  current 
of  one  ampere  to  flow  through  a  resistance  of  one  ohm." 
Now,  what  is  the  ohm.'*  We  are  told:  "The  resistance 
offered  to  a  current  of  electricity  by  a  column  of  mercury 
106.3  cm.  long,  having  a  mass  of  14.4521  gram  at  a  tem- 
perature of  melting  ice";  and  the  ampere  is  the  current 
which,  when  passed  through  a  proper  solution  of  silver 

*  Einstein,  A.,  "Theory  of  Relativity"  (translated  by  Lawson, 
R.  W.),  1920,  p.  10.  See  also  Ames,  J.  S.,  "Presidential  Address 
before  Physical  Society,  December  30,  1919;  and  Eddington,  A.  S., 
"Space,  Time,  and  Gravitation,"  1920,  p.  8:  "Natural  Geometry  is  the 
theory  of  the  behavior  of  material  scales." 


THE  METHODS  OF  SCIENCE  205 

nitrate,  will  deposit  upon  the  cathod  .001118  gram  of 
silver  in  one  second.  The  gram  in  turn  is  the  one-thou- 
sandth part  of  a  kilo,  which  itself  is  supposed  to  have 
the  same  mass  as  that  of  one  thousand  cubic  centimeter 
of  pure  water  at  4°  Celsius,  zero  being  the  freezing  point 
of  pure  water  at  sea-level,  while  the  boiling  point  is  one 
hundred  degrees  above  that. 

This,  of  course,  leaves  us  still  the  centimeter  and  the 
second,  to  say  nothing  of  other  terms  which  might  be  said 
to  call  for  definition,  if  our  idea  of  a  kilowatt  is  to  be 
rounded  out  in  all  directions.  However,  waiving  these 
further  explanations,  we  proceed  to  the  two  remaining 
definitions,  and  find  first,  that  a  centimeter  refers  to  a 
linear  standard  which  is  the  length  of  a  bar  of  platinum 
in  the  city  of  Paris,  in  France,  this  bar  containing  10  per 
cent  iridium  at  0°  Celsius ;  while  the  second  is  a  fraction 
of  the  solar  day,  whose  prototype  is  the  sidereal,  that  is 
the  time  interval  between  two  successive  returns  of  a  fixed 
point  on  the  earth  to  the  meridian.  Thus  a  reliable  unit 
of  time  measurement  is  established  for  which  astronomers 
have  vouched,  and  so  our  kilowatt  becomes  intelligible  as 
a  derivative  of  simpler  units  which  terminate  somewhere 
in  definitions,  that  is  agreements. 

Standards  are  important  for  science,  since  it  frequently 
quantifies  qualities,  going  in  this  respect  contrary  to  com- 
mon sense.  Quality  and  quantity  are  of  course  aspects  of 
one  and  the  same  thing,  and  therefore  should  not  be  sepa- 
rated as  if  it  were  impossible  to  treat  a  fact  from  both 
viewpoints.  In  reality  there  is  no  class  of  things  whose 
quantities  or  degrees  of  quality  could  not  be  compared  in 
a  continuum  of  measurement.  Quality  and  quantity  are 
categories  like  time  and  space  that  represent  modes  of 


206  A  CRITIQUE  OF  ECONOMICS 

thinking,  if  nothing  else,  and  permit  us  to  bring  order  into 
chaos.^  But  it  is  significant  that  the  impressions  of  our 
senses  may  yield  qualities  when  measurements  of  science 
demand  quantity.  The  treatment  of  color  and  sound  as 
wave  length  and  rates  of  vibration  are  old  illustrations  a 
propos  of  this  subject.  The  curves  which  to  the  eye  seem 
so  entirely  different  from  straight  lines  are  resolved  into 
points  by  mathematicians  who  see  continuity  even  while 
postulating  discreteness.  But  let  us  not  forget  that  it  is 
as  easy  to  make  classes  out  of  different  sizes  of  an  object 
as  it  is  necessary  for  a  physicist  to  reduce  quality  to 
point-events.  For  one  purpose  there  are  as  many  quali- 
ties as  we  have  sensory  nerve  endings;  for  another  the 
number  of  qualities  depends  on  our  sensitivity  to  degrees 
of  intensity  in  stimuli;  and  for  yet  another  purpose  we 
may  feel  obliged  to  picture  the  whole  world  as  an  infinite 
— or  finite! — number  of  atoms  whose  perceivable  interac- 
tions alone  mean  quality  and  individuality.  Organic  be- 
ings, for  instance,  may  always  have  to  be  regarded  as  in- 
dissoluble units,  since  laws  of  life  function  in  each  sepa- 
rately and  create  differences  which  for  practical  purposes 
are  inextingushable.  We  know,  e.g.,  that  ten  mediocre 
men  do  not  equal  one  man  of  genius,  and  that  the  interests 
or  actions  of  one  do  not  depend  altogether  upon  those 
of  a  second  or  third.  Yet  these  facts  do  not  prevent 
natural  scientists  from  quantifying  certain  sense  data, 
nor  are  they  inconsistent  in  harping  on  quality  or 
attributes  at  other  times  when  their  search  for  laws  urges 
them  to. 

Experimentation  as  the  First  Method. — The  method  of 
science,  and  particularly  of  the  natural  sciences,  is  there- 

"  For  logical  aspects  see  Bosanquet,  B.,  "Logic,"  vol.  I,  p.  127. 


THE  METHODS  OF  SCIENCE  207 

fore  both  a  qualitative  and  a  quantitative  analysis.* 
Events  are  described  as  happening  together  in  time  or 
space,  and  by  event  we  may  mean  either  an  object  discern- 
ible by  the  senses,  or  something  imperceivahle.  The  chem- 
ist correlates  substances  or  qualities  as  well  as  quantities 
of  each  element.  In  his  case  the  two  phases  of  measure- 
ment are  plainly  visible.  But  they  exist  just  as  well  for 
physicists  or  other  investigators,  although  the  quantita- 
tive view  may  be  most  noticeable.  In  all  cases  of  experi- 
mentation students  aim  at  an  isolation  of  things  and  their 
relative  amounts,  changes  under  more  or  less  complete 
control  of  the  factors  in  question  being  narrowly 
watched  and  recorded.  Science  cannot  attain  to  cer- 
tainty unless  it  succeeds  in  finding  irreducible  wnits, 
that  is,  things  or  magnitudes  which  invariably  go  together 
and  so  provide  the  basis  for  the  formulation  of  a  law. 
Irreducible  units  are  as  essential  to  exact  law  as  atoms 
to  chemistry.  The  final  outcome  of  all  inquiries  must 
always  be  the  detection  of  that  smallest  number  of  ele- 
ments or  events  which  regularly  occur  in  succession  or 
simultaneously.  It  is  by  isolating  the  facts  which  give 
this  simplest  formula  for  event-complexes  that  the  natural 
scientist  fulfills  his  chief  function. 

The  method  of  variation  ^  is  hence  a  standard  proce- 
dure of  physical  scientists.  Quantities  are  correlated  as 
absolutes  or  as  variables;  and  the  variations  are  found 

*On  significance  of  twofold  measurement  see:  Spencer,  H.,  "Gene- 
sis of  Science,"  in  "Illustrations  of  Universal  Progress"  (Appleton 
&  Co.),  1890;  Pearson,  K.,  "Grammar  of  Science,"  1911,  p.  173; 
Westaway,  F.  W.,  "Scientific  Method,"  1912,  p.  214. 

°  Treated  usually  from  standpoint  of  causality,  and  made  familiar 
by  Mill,  J.  S.  For  excellent  tabulations  see  Schiller,  F.  C.  S.,  "Formal 
Logic,"  1912,  ch.  19,  and  p.  265;  and  Joseph,  H.  W.  B.,  "Introduction 
to  Logic,"  edit.  1916,  pp.  439-40. 


208  A  CRITIQUE  OF  ECONOMICS 

either  to  express  constant  ratios,  or  to  approximate  them. 
Whenever  fixity  of  proportion,  or  constancy  of  correlates 
is  lacking,  we  must  infer  that  the  latter  are  compounds 
and  need  further  reduction  to  simpler  units.  In  making 
note  of  these  extraneous  elements  which,  from  the  stand- 
point of  any  one  central  correlation,  appear  as  "con- 
ditioning" factors,  we  may  be  able  to  find  other  laws  of 
nature.  Variation  amidst  changing  known  or  unknown 
events  becomes  necessary  whenever  a  "conjunction  of 
elements  or  features  in  the  real  [world],  whose  connection 
is  not  intelligible  from  a  consideration  of  themselves,  is 
made  clear  through  connections  shown  between  them  and 
others."  ^  A  plus  and  minus  is  introduced,  whose  bearing 
upon  the  problem  under  review  is  itself  treated  quanti- 
tatively or  qualitatively,  according  to  needs.  What 
logicians  for  generations  laid  down  as  the  Canons  of  In- 
duction, is  this  addition  and  subtraction  of  events,  the 
differences  or  agreements  being  checked  up  so  as  to  help 
us  establish  the  correlation  of  "essentials,"  i.  e.,  a  law 
whose  regularity  should  equal  our  notion  of  immutable 
necessary  connections.  Logicians,  to  be  sure,  have  worked 
at  this  problem  with  a  desire  to  explain  causality,  or  to 
show  how  things  are  proven  to  be  the  cause  or  the  effect. 
But  it  follows  from  what  has  previously  been  said  that  a 
more  modern  and  just  estimate  will  ignore  the  old  belief  in 
specific  causation,  confining  itself  instead  to  the  fact  that 
invariability  of  sequences  or  coexistences  does  appear,  or 
where  not  in  evidence,  would  prevail  except  for  interfer- 
ences which  themselves  obey  laws  as  truly  as  our  par- 
ticular correlates. 

In  general  the  experimental  method  revolves  about  this 

•Joseph,  "Logic,"  p.  502. 


THE  METHODS  OF  SCIENCE  209 

weighing  of  alternatives,  of  things  common  to  several 
consequents  or  antecedents,  and  of  unique  properties 
which  in  any  one  case  indicate  what  is  regular  and  what 
is  not.  "Inductive  conclusions,"  as  one  writer  has  aptly 
stated,  "are  established  disjunctively  by  the  disproof  of 
alternatives."  ^  Science  uses  the  disjunctive  syllogism 
more  than  any  other.  It  uses  it  in  measuring  the  integral 
parts  of  a  complex  to  be  analyzed  as  a  law  or  as  a  set  of 
laws.  It  uses  it  to  measure  the  conditions  as  well  as  the 
problem  itself.  It  compares,  in  a  precise  quantitative 
manner,  all  changes  subject  to  control,  and  generalizes 
in  due  time  on  their  significance.  Experiments  are  re- 
peated a  few  times  or  a  great  number  of  times,  dependent 
upon  the  number  of  events  under  investigation,  upon  the 
degree  of  regularity  tentatively  ascertained,  upon  the 
novelty  of  inferences  suggested,  and  upon  the  importance 
of  results  theoretically  or  practically.  In  most  cases 
it  is  inference  from  enumeration,  as  well  as  a  compari- 
son of  partial  or  total  resemblances,  that  leads  to  substi- 
tutions or  reasoning  by  analogy.  Hypothecation  is  indis- 
pensable in  most  experiments.  An  hypothesis  entitles  the 
student  to  make  deductions,  to  continue  his  measurements 
and  see  whether  his  deductions  agree  with  the  facts  so 
discovered,  and  to  pronounce  his  inference  "verified"  if 
the  agreement  is  complete.  Or  rather,  since  a  consequent 
may  have  several  apparently  identical  antecedents,  an 
important  duty  of  the  experimentalist  is  the  right  choice 
of  an  hypothesis,  the  calculation  of  pros  and  cons  accord- 
ing to  prior  knowledge,  in  harmony  with  our  interests 
at  the  time.  We  usually  have  explicit  and  implicit  as- 
sumptions. Both  will  be  found  if  we  go  back  far  enough, 
''Ibidem,  p.  444. 


210  A  CRITIQUE  OF  ECONOMICS 

although  on  the  surface  the  explicit  ones  suffice.  In  the 
words  of  one  authority:  "The  verification  of  the  explicit 
hypotheses  requires  an  interpretation  of  experience  sub- 
ject to  the  implicit  hypotheses.  In  their  turn  these  latter 
are  in  great  part  verified  by  means  of  other  theories  and 
explicit  hypotheses,  and  are  corrected  when  needed,  by  a 
wider  comparison  with  the  knowledge  already  acquired."  ^ 
Association,  as  was  recognized  early  in  the  history  of 
inductive  logic,  plays  a  notable  part  in  this  act  of  hypothe- 
cation. It  is  unavoidable  that  men  let  themselves  be 
guided  somewhat  by  the  past,  no  matter  how  much  argues 
against  it  in  the  abstract.  Association  by  similarity,  ap- 
parent or  real,  exercises  an  appreciable  influence  because 
"thoughts  which  resemble  one  another  involve  brain  proc- 
esses which  at  some  point  have  identical  elements"  or 
"identical  nervous  pathways."  ^  This  physiological  view 
of  a  psychic  fact  may  be  accepted  as  a  reasonable  way  of 
explaining  the  value  of  associational  thinking  in  scientific 
research.  But  of  course,  purpose  also  directs  our  quest 
for  premises,  thus  eliminating  automatically  certain  rival 
assumptions  which  later  one  may  prove  to  be  superior. 
The  results  must  decide  in  the  matter.  If  the  end  justi- 
fies the  means  in  the  sense  that  inductively  gathered  data 
tally  with  conclusions  deductively  made,  we  may  feel  sure 
of  both.  We  must  however  remember  that  a  perceptual 
consequent  studied  in  the  laboratory  may  have  many 
antecedents,  and  vice  versa,  so  that  on  the  one  hand 
"causes"   experimentally   verified   need   not   after  all   be 

'Enriques,  F.,  "Problems  of  Science,"  1906  (Transl.  by  Mrs. 
K.  Royce,  1914),  p.  165-66;  also  Jevons,  W.  S.,  "Principles  of 
Science,"  3.  edit.,  p.  228. 

»Angell,  J.  R.,  "Introduction  to  Psychology,"  1918,  p.  165.  A 
very  lucid  presentation  also  in  Muensterberg,  H.,  "Psychology,  Gen- 
eral and  Applied,"  1914,  ch.  8. 


THE  METHODS  OF  SCIENCE  211 

irreducible  units,  while  on  the  other  hand  such  final  units 
must  be  interrelated  uniformly,  however  variable  their  per- 
ceptible quantitative  relations.  //  we  have  found  real 
indivisibles  of  events  in  a  qualitative  sense,  proving  them 
single  events,  their  several  inter-connections  will  consti- 
tute exact  laws  of  nature.  Such  is  the  scientific  view  of 
a  Uniformity  of  Nature. 

Statistics  as  Second  Method. — But  suppose  our  in- 
quiries do  not  reveal  such  absolute  regularities  of  re- 
currence.? Suppose  our  events  are  not  as  homogeneous 
as  those  of  physics  and  chemistry?  Is  then  a  general- 
ization impossible.'^  Shall  we  then  forego  our  desire  to 
fathom  the  inward  nature  of  things,  to  discover  necessary 
connections  and  regularities  of  recurrence  less  than  per- 
fect.? 

The  answer  to  such  questions  is  the  use  of  statistics  and 
of  a  new  type  of  measurements.  Statistics  as  a  method 
links  the  quantitative  exactness  of  experimentation  with 
the  purely  qualitative  analysis  of  reflection.  But  it  must 
be  allowed,  incidentally,  that  it  cannot  be  more  than  a 
method.  It  cannot  be  a  separate  science,  for  the  relations  ^ 
it  analyzes  form  part  of  many  fields  of  work,  each  of 
which  is  already  recognized  as  a  true  science.  The  origi- 
nal meaning  of  the  word  statistics  is  not  tenable  to-day. 
Human  relations  have  long  been  assigned  to  several  dis- 
tinct, albeit  affiliated,  studies;  and  the  variety  of  data 
covered  by  each  has  enormously  grown.  What  is  more, 
there  are  also  natural  sciences  which  avail  themselves  of 
the  statistical  method,  so  that  as  a  science  statistics  would 
be  extremely  eclectic,  to  say  the  least.  Whether  it  be  the 
study  of  games  of  chance,  or  of  the  weather,  or  of  organic 
heredity  or  of  the  variations  of  morphological  traits  in 


212  A  CRITIQUE  OF  ECONOMICS 

organisms,  or  of  social  data — in  all  cases  the  statistical 
method  will  prove  useful  regardless  of  what  particular 
science  is  involved.  As  a  method  statistics  must  interest 
methodologists.  As  a  study  of  some  select  group  of  events 
it  can  form  merely  a  part  of  a  larger  problem  preempted 
by  this  science  or  that. 

The  Field  of  Statistics.— What  then  are  the  circum- 
stances which  make  a  resort  to  statistics  advisable  or 
necessary.? 

In  the  first  place,  though,  statistics  is  applicable  also  to 
certain  data  of  the  physical  sciences,  it  refers  chiefly  to 
events  or  units  which  are  secondary  and  complex.  That 
is  to  say,  the  units  are  most  commonly  not  the  last,  irre- 
ducible ones  known  to  physicists  or  chemists,  but  such  as 
are  presented  directly  to  the  senses  and  built  up,  as  it 
were,  out  of  irreducible  units.  A  reduction  of  perceptual 
units  to  the  conceptual  of  abstract  science  is  always  pos- 
sible. If  we  so  choose,  we  may  trace  a  definite  qualita- 
tive or  quantitative  relation  between  the  things  of  com- 
mon sense  and  the  atoms  or  electrons  (or  whatever  the 
name  be)  of  the  scientist.  But  the  statistician  usually 
takes  things  without  reducing  them  to  final  units.  His 
events  or  propositions  are  secondary  magnitudes  whose 
components  may  be  shown  to  observe  physical  laws.  In 
this  sense  also  the  units  of  the  statistician  are  commonly, 
though  not  always,  compounds  and  groups  of  events. 
What  in  the  preceding  chapter  were  called  event-complexes 
constitute  a  large  portion  of  the  statistical  raw-material. 
The  weather,  e.g.,  is  studied  as  a  single  fact,  though  it 
comprises  a  number  of  distinguishable  facts  such  as  water 
or  vapor,  temperature,  air  currents,  etc.  Each  of  these 
constituents   is   again   resolvable  into  finer  units,  which 


THE  METHODS  OF  SCIENCE  213 

natural  science  analyzes  for  one  purpose  or  another;  but 
all  of  them  together  make  up  the  class  of  events  known  as 
the  weather.  So  also  do  deaths  or  wage-rates  or  organ- 
isms and  their  parts,  or  the  categories  of  social  sciences, 
represent  complexes  more  or  less  apparent.  Relations 
such  as  constitute  an  invalid  or  an  epidemic  or  a  crime 
or  an  improved-farm  may  be  treated  as  single  entities, 
though  of  course  at  a  risk  only  too  familiar  to  students. 

In  the  second  place,  statistics  is  a  valuable  method 
where  the  "conditioning"  phenomena  are  either  indetermi- 
nate in  number  or  of  unknowable  make-up,  as  for  instance 
in  the  throwing  of  dice  or  in  meteorological  events.  In 
such  cases  the  classifiable  number  of  elements  may  be  few. 
But  if  time  and  place  or  spatial  units  affect  our  calcula- 
tion of  magnitudes,  if  the  facts  accompanying  our  se- 
quence cannot  be  measured  or  qualitatively  analyzed,  we 
must  treat  them  as  variables  and  trust  to  numbers  of 
occurrences  for  light  on  the  problem.  Even  then  no  prin- 
ciple of  constancy  need  appear.  That  would  be  a  ques- 
tion by  itself.  But  the  mere  incommensurability  of  our 
modifying  factors  for  any  particular  set  of  events  will 
urge  us  to  try  statistics. 

In  the  third  place,  the  temporal  and  spatial  units  in 
statistical  measurements  are  frequently  indefinite.  Instead 
of  close  successions  or  of  simultaneities  evident  to  our 
senses  we  have  vague  sections  of  time  and  space.  The 
total  period  or  area  for  which  our  events  are  studied  may 
be  of  uncertain  length ;  and  apart  from  this,  the  intervals 
between  the  events  of  any  one  single  series  may  be  ill- 
defined.  A  hard  and  fast  line  therefore  cannot  be  drawn 
between  sequences  and  co-existences.  Frequencies  and 
correlations  will  be  treated  independent  of  time,  or  as  if 


2U  A  CRITIQUE  OF  ECONOMICS 

it  made  no  difference  whether  they  occurred  together  or 
in  succession.  Our  temporal  and  spatial  units,  too,  are 
likely  to  be  larger  than  a  natural  scientist  would  com- 
mend. Units  of  seconds  or  hours  are  not  common.  Again, 
a  certain  license  with  concepts  of  periodicity  is  taken  by 
statisticians,  which  colors  their  results.  More  important 
however:  Large  time  units  multiply  the  variety  of  possible 
combinations  of  primary  elements  into  the  event-complexes 
counted  and  compared  by  statistics.  Regular  connections 
thus  are  less  easily  established,  and  the  principle  of  plu- 
rality of  cause  and  effects  has  full  sway. 

This  means  then,  in  the  fourth  place,  that  statistical 
methods  are  serviceable  whenever  our  recurrences  of  rela- 
tions are  imperfect  and  impermanent.  Instability  of  fre- 
quencies is  the  other  side  of  the  stability  which  we  find 
and  accept  as  the  utmost  attainable  in  such  fields.  Per- 
fect regularity  in  all  details  would  mean  a  law  of  nature, 
and  is  attributable  to  facts  which  give  experimentation 
its  supreme  position  among  methods.  Partial  repetition, 
and  hence  a  variable  degree  of  constancy,  points  to  con- 
ditions demanding  a  statistical  adding  and  subtracting. 
Variability  is  unavoidable  because  of  the  immense  number 
of  facts  involved  in  our  examination  of  particulars.  In- 
creasingly as  we  pass  from  inorganic  to  organic,  and 
from  biological  to  social,  phenomena  we  meet  with  complex 
relations,  wjth  things  inherently  changeable  and  subject 
to  erratic  fluctuations.  Viewed  statistically  the  world  is 
measurably  in  a  constant  flux.  Facts  never  repeat  them- 
selves exactly  as.  once  experienced.  Each  episode  is 
unique,  and  intertwined  with  others  so  as  to  defy  our 
ingenuity  to  unravel  them  all.  Variability  and  movement 
exist  objectively.     As  metabolism  or  as  an  elan  vital,  as 


THE  METHODS  OF  SCIENCE  215 

human  will  or  public  policy  this  disposition  to  vary  mani- 
fests itself  in  things  of  life.  In  lieu  of  a  mechanical  paral- 
lelogram of  forces  we  have  an  incessant  ariabolis  and 
katabolis  of  physical  and  psychic  aspects.  Change  thus 
is  more  than  quantitative.  It  is  not  only  a  variation  of 
magnitudes  that  must  be  gauged,  but  also  change  of 
qualitative  relations  such  as  everybody  observes  on  a 
limited  scale,  without  special  means  and  methods.  Sta- 
tistics for  this  reason  centers  in  problems  of  rates  of  dif-  > 
ference  and  frequency,  in  percentage  scales  and  compara- 
tive studies  of  variables. 

Finally,  and  fifth,  it  is  a  commonplace  that  the  statisti- 
cal method  is  most  effective  where  the  events  to  be  studied 
cannot  be  reproduced  at  will.  Vital  phenomena,  the  shak- 
ing of  dice,  economic  relations,  and  the  data  of  bio-metrics 
are  not  amenable  to  laboratory  measurements  because  we 
cannot  isolate  particulars,  cannot  recreate  all  the  con- 
ditions accompanying  each  set  of  correlates.  Hence,  for 
lack  of  a  deliberate  predetermination  of  magnitudes  or 
different  classes,  we  must  count  them  as  they  come,  noting 
variations  and  establishing  interdependencies  in  that  man- 
ner. If  we  wish  to  make  selections  it  must  be  conceptually 
rather  than  perceptually.  In  other  words,  while  a  chemist 
may  detach  real  events  in  time  and  space,  the  statistician 
will  detach  them  only  by  way  of  classification.  He  must 
classify  and  then  count  classes  and  their  respective  fre- 
quencies. To  this  extent  he  may  single  out  certain  hap- 
penings for  his  own  purposes.  But  the  actual  happen- 
ings escape  his  control. 

Statistical  Measurement. — The  chief  branches  of  sta- 
tistical measurement  rest  directly  or  indirectly  on  these 
^\Q  characteristics  which  delimit  the  field  of  statistics.    It 


216  A  CRITIQUE  OF  ECONOMICS 

will  be  convenient,  however,  to  distinguish  from  the  outset 
between  its  external  technique  and  the  principles  of  meas- 
urement as  such.  Or  rather,  we  would  do  well  also  to  dif- 
ferentiate sharply  between  a  descriptive  and  an  inferen- 
tial statistics. ^^  For  it  is  one  thing  to  measure  things  or 
to  record  relations,  and  quite  another  to  infer  anything 
from  these  as  to  future  events.  Measurements  may  be 
easy  when  induction  is  impossible ! 

The  external  or  mechanical  side  of  statistics  is  not,  of 
course,  negligible;  but  it  may  be  stressed  at  the  cost  of 
principles  which  bear  immediately  upon  problems  of  in- 
duction. To  a  degree  the  statistician  is  helped  by  cal- 
culating devices  and  the  use  of  logarithms.  He  observes 
certain  rules  in  collecting  materials,  in  making  out  ques- 
tionnaires and  schedules.  He  should  acquaint  himself 
with  the  best  methods  of  rounding  off  figures  or  smooth- 
ing his  lines  for  visualizing  results.  There  are  questions 
in  tabulation  and  in  the  summation  of  results,  in  the  mak- 
ing of  graphs  and  diagrams ;  and  so  on.  Such  matters 
deserve  careful  attention,  especially  if  accuracy  or  in- 
ference is  nowhere  a  vital  issue.  But  what  statistics 
is  chiefly  concerned  with  is  measurement.  The  outstand- 
ing topics  of  a  statistical  treatise  will  always  be  units  or 
classification,  a  counting  of  variation  and  frequency,  the 
use  of  averages,  the  analysis  of  dispersion,  and  a  correla- 
tion of  events  for  inferential  needs.  When  principles  for 
these  have  been  laid  down,  the  further  question  of  the 
validity  of  statistical  induction  has  already  been  answered 
in  large  measure. 

A  definition  of  units  is  important  for  the  same  reason 
that  makes  it  so  important  in  all  scientific  work.  We 
"  Keynes,  J.  M.,  "Treatise  on  Probability,"  ch.  27. 


THE  METHODS  OF  SCIENCE  217 

must  have  standards  and  classes  for  comparison.  Scien- 
tific methods  always  turn  on  inclusion  and  exclusion. 
Classification  invariably  is  the  beginning  as  well  as  the 
end  of  researches.  It  may  be  indifferent  to  us  whether 
we  call  our  units  for  measurement  objects  or  events  or 
propositions.  But  there  must  be  no  doubt  about  the 
nature  of  the  thing  to  be  measured  and  correlated  with 
other  things.  Consistency  in  definitions  is  essential.  Uni- 
formity of  selection  is  a  first  guarantee  of  success  for 
later  comparisons.  Yet  an  element  of  arbitrariness  cannot 
be  avoided.  Though  not  all  definitions  are  postulates, 
statistical  units  frequently  are  no  more.  What  wages 
are,  e.g.,  or  what  constitutes  a  clear  sky,  or  what  a  death 
from  cancer  is,  or  what  should  be  our  definition  of  a 
"psychic  trait'* — these  are  questions  answerable  only  by 
agreement,  without  reference  to  known  correlations. 
Again,  magnitudes  lose  continuity  by  being  classed.  Dis- 
creteness and  continuity  are  always  vexing  factors  when 
nicety  of  calculation  is  required.  We  may  need  com- 
posite classes  such  as  index-numbers  in  measuring  costs 
of  living;  or  we  may  let  averages  serve  as  units  whose 
composition  can  only  be  roughly  homogeneous.  In  any 
case  the  definition  of  units  is  a  consequential  step,  and 
this  the  more  so  since  the  counting  of  many  of  them  may 
aggravate  the  evil  of  a  faulty  classification. 

Counting  however  is  necessary  because  of  the  varia- 
bility of  our  data.  Indeed,  statistics  might  be  defined  as 
the  counting  of  classes  of  events  and  their  numerical 
comparison.  While  natural  scientists  may  rely  upon  a 
single  occurrence — as  they  have  demonstrated  again  and 
again — statisticians  must  place  their  faith  in  a  law  of 
large  numbers,  in  endless  repetitions  and  the  measurement 


218  A  CRITIQUE  OF  ECONOMICS 

of  relative  differences  among  members  of  a  class.  In 
fact,  they  must  count  in  two  directions.  For  there  are, 
first,  magnitudes  whose  differences  may  be  put  into  or- 
derly array  for  one  purpose,  and  there  are,  secondly,  fre- 
quencies for  each  member  of  the  line-up  which  may  be 
wanted  for  quite  another  purpose.  Measurement  con- 
cerns both  differences  of  magnitude  for  a  given  group  of 
classes,  and  differences  in  the  number  of  recurrences  for 
each  member  of  such  a  group.  An  incidental  result  of 
such  variations  is  the  need  of  interpolations  and  of  a 
smoothing  of  curves,  where  the  events  are  counted  only  in 
part,  or  where  for  one  reason  or  another  they  do  not  ex- 
ist. But  the  principal  task  will  be  the  determination  of 
how  much  must  be  counted  for  a  proper  diagnosis  of  fluc- 
tuations. What  differences  to  ignore  and  which  to  include, 
and  how  to  find  the  total  frequency  or  frequencies  for 
particular  temporal  and  spatial  units,  that  is  the  chief 
problem!  The  time  element  may  complicate  it  appre- 
ciably, as  the  makers  of  index-numbers  know.  The  choice 
between  moving  and  fixed  bases  and  averages  may  be  as 
difficult  as  it  will  prove  important  in  the  end.  Our  notion 
of  relative  magnitudes  and  frequencies  is  materially  af- 
fected by  the  scope  of  our  measurements  and  by  the  choice 
of  series  of  events  happening  in  time.  Histograms  and 
ogives  and  historigrams  therefore  must  be  referred  back 
to  our  definition  of  classes  and  principles  of  counting, 
especially  where  socio-economic  phenomena  are  compared. 
Averages  ^^  apparently  simplify  the  situation,  but  at 

"  For  recent  statements  on  value  of  averages  see  Carver,  H.  C,  in 
Quarterly  Publications  of  American  Statistical  Association,  1921, 
p.  72U  See  also:  Mitchell,  W.  C,  in  Bulletin  284  of  Bureau  of 
Labor  Statistics,  October,  1921;  Zizek,  F.,  "Statistical  Averages" 
(transl.  by  Persons,  W.  M.),  1913. 


THE  METHODS  OF  SCIENCE  219 

last  analysis  they  prove  merely  that  we  are  satisfied  with 
something  less  than  the  utmost  possible  accuracy.  They 
are  used  because  of  the  limitations  of  our  eyes  and  of  our 
mind,  and  on  assumptions  which  cannot  be  demonstrated 
in  the  great  majority  of  cases.  For  the  average,  as  sta- 
tisticians commonly  construct  it,  is  a  condensation  of 
fluctuations,  or  the  elimination  of  minor  fluctuations  whose 
real  share  in  the  frequency  of  any  one  event  may  be  dif- 
ferent from  what  we  believe.  What  may  be  called  a  bare 
numerical  average  is  relatively  insignificant  in  statistical 
work.  To  say  that  the  average  of  the  sum  of  three,  five, 
and  seven  is  five,  means  little  if  we  have  colorless  magni- 
tudes such  as  mathematics  or  formal  deduction  to  manipu- 
late. But  if  we  count  real  things  and  events  in  the  out- 
side world,  related  to  many  other  classes  of  events  and 
modified  by  them  from  time  to  time,  an  averaging  involves 
almost  certainly  a  disregard  of  some  facts.  In  the  words 
of  the  logician:  causal  relations  are  misrepresented.  The 
interconnections  of  each  event  or  of  each  series  of  events 
per  class  are  partly  ignored,  partly  shifted  in  space  and 
time.  Some  relations  are  magnified,  others  neglected. 
The  irregularity  of  statistical  relations  and  recurrences 
leaves  no  other  conclusion.  Statistical  as  functional 
averages,  hence,  are  a  makeshift  whose  advantages  are 
often  off"set  by  weaknesses  that  are  real,  even  though  not 
measurable.  Or  to  put  the  matter  diff^erently :  With  the 
exception  of  the  median,  averages  are  artifices.  They  are 
products  of  a  creative  mind.  Like  laws  of  nature  they 
are  compounds  of  something  objective  and  something  else 
that  is  strictly  subjective.  They  are  marred  by  the  lia- 
bility to  error  which  characterizes  all  human  acts.  Nature 
knows   individuals   and   relations,  but  it  does  not  know 


220  A  CRITIQUE  OF  ECONOMICS 

arithmetical     or     geometrical     averages,     or     even     the 
mode. 

The  limitations  of  the  average  are,  to  an  extent,  ad- 
mitted by  statisticians  when  they  calculate  the  dispersion 
of  frequencies  and  its  co-efficients.  For  here  we  find  one  set 
of  items  in  an  array  of  magnitudes  used  to  qualify  our 
estimate  of  another,  or  to  qualify  the  average  itself  which 
represents  the  whole  group.  Dispersion  is  of  individual 
differences  as  well  as  of  their  relative  frequencies.  It 
amounts  to  an  attempt  to  consider  individuals  in  spite 
of  the  fact  that  large  numbers  are  necessary  for  a  dis- 
covery of  regularities.  We  decide  at  first  to  lump  in- 
equalities, to  ignore  minor  variations,  but  forthwith  com- 
pare frequencies  for  sub-groups  within  a  given  series  so 
as  to  obtain  a  clearer  picture  of  the  entire  situation. 
Averages  serve  as  a  standard  for  measuring  deviations 
which  in  their  turn  throw  light  on  the  true  value  of  these 
means.  Absolute  and  relative  deviations  thus  have  in- 
creasingly engaged  the  attention  of  students.  Ideal 
curves  of  "error,"  i.e.,  of  dispersion  away  from  the  type 
must  be  corrected  by  actualities  that  the  Gaussian  figure 
did  not  originally  cover.  Irregularities  of  diverse  sorts 
remain  to  be  ascertained  according  to  the  nature  of  our 
subject,  and  this  skewness  is  expressed  in  terms  of  the 
difference  between  several  sorts  of  averages  found  for  our 
series  of  events.  Quartiles  and  decils  gain  significance 
in  localizing  movements  away  from  a  standard  distribu- 
tion, while  coefficients  become  valuable  for  practical  ap- 
plications such  as  insurance  companies  or  economists  de- 
sire. But  in  these  refinements  of  measurement  some  "er- 
rors" must  after  all  be  overlooked,  and  their  ultimate 
sources   remain  obscure.      That  is,   coefficients   of  every 


THE  METHODS  OF  SCIENCE  221 

sort  are  makeshifts  because  they  point  back  to  definitions     »^ 
of  average  which  are  essentially  subjective.     Variations 
cannot  be  measured  and  correlated  perfectly.     Differen- 
tials in  appreciable  proportion  escape  our  vigilance,  par- 
ticularly where  time  is  a  factor  in  our  reckonings ! 

Statistical  correlation,  too,  compares  unfavorably  with 
the  results  of  natural  science  because  of  the  range  of 
variability  of  events.  Yet  it  constitutes  the  main  object 
of  all  measurements,  as  already  shown.  The  great  bulk 
of  statistical  inquiry  aims  at  correlations  of  one  class  or 
another.  In  ordinary  frequency  measurements  the  cor- 
relations are  implied  rather  than  consciously  sought;  but 
of  recent  years  the  other  kind — what  may  be  termed  spe- 
cific correlations — have  come  in  for  their  share  of  recog- 
nition. 

All  frequencies  are  akin  to  correlations  because  they  • 
refer  to  definite  classes  of  events,  each  of  which  comprises 
in  reality  a  number  of  things  or  other  events.  This  fol- 
lows from  the  secondary  nature  of  our  statistical  units, 
from  the  fact  that  the  units  are  compounds  or  event- 
complexes  whose  composition  is  partly  unknown  to  us.  In 
speaking  therefore  of  a  death-rate  or  of  the  turning-up 
of  a  certain  number  when  throwing  dice,  or  of  the  fre- 
quency of  a  given  income  or  of  the  distribution  of  *ages 
in  a  population  we  are  necessarily  establishing  a  corre- 
lation. We  do  not  think  of  it  as  such  chiefly  because  of 
our  definition  of  the  class.  There  is  only  one  variable 
distinctly  pointed  out,  and  so  the  others  are  forgotten. 
In  specific  correlations,  however,  two  or  more  specified 
variables  are  compared.  They  belong  evidently,  or  so 
far  as  we  know,  to  allied  groups  of  relations — of  what 
are  usually  styled  causal  relations.     Hence  correlation  in 


V 


222  A  CRITIQUE  OF  ECONOMICS 

the  narrow  sense  aims  at  a  discovery  of  these  common 
interdependencies.  Their  quantitative  manifestations  are 
studied.  Reenforcing  and  counteracting  events  engage 
our  attention  and  yield  positive  or  negative  correlations 
of  varying  degrees.  Qualitative  correlation  concerns  the 
degree  of  regularity  with  which  sympathetic  movements 
of  two  or  more  variables  recur.  Quantitative  correlations 
show  the  ratios  of  variation  for  our  variables,  for  which 
a  "coefficient"  may  be  found  exactly  as  in  the  case  of  dis- 
persion. But  it  must  always  be  borne  in  mind  that  coef- 
ficients depend  upon  prior  computations,  definitions,  and 
assumptions  whose  value  is  in  part  uncertain.  To  have 
measured  exactly  a  degree  of  relative  fluctuations  and 
frequencies,  in  time  or  out  of  time,  for  two  or  more 
variables  is  not  to  have  proven  the  correctness  of  the 
premises  with  which  we  started  out.  The  very  fact  that 
we  may  adapt  different  kinds  of  coefficients  to  different 
uses,  as  we  do  with  averages,  should  remind  us  of  the 
purely  descriptive  function  of  such  terms.  Correlation 
as  a  description  of  numerical  variations  which  are  more 
or  less  proportionate  is  a  safe  procedure.  The  rub  comes 
when  we  infer  from  such  matters  of  record  the  course  of 
similar  future  events ! 

Statistical  Induction. — Statistical  induction,  as  re- 
marked before,  must  not  be  confused  with  descriptive 
statistics.  The  latter  deals  simply  with  measurements,  and 
measurements  for  present  purposes  may  be  called  view- 
points. We  may  vary  our  estimate  of  statistical  events 
because  they  are  studied  collectively,  in  large  numbers, 
and  for  the  most  part  as  quantitative  changes.  On  this 
account  several  modes  of  measurement  are  permissible 
and  net  us  different  viewpoints  of  one  and  the  same  object 


THE  METHODS  OF  SCIENCE  223 

or  situation.  Successive  measurements  by  different  aver- 
ages and  coefficients,  for  different  series  of  like  events, 
correspond  to  a  set  of  impressions  we  get  by  approaching 
a  landscape  from  different  angles.  We  cannot  view  the 
whole  at  once;  neither  can  we  reconcile  all  the  features 
displayed  in  our  several  approaches.  But  as  long  as  we 
content  ourselves  with  what  we  do  see,  making  no  predic- 
tions, all  is  well.  It  is  only  when  we  infer  from  the  pres- 
ent to  the  future  that  difficulties  arise. 

Before  considering  briefly,  however,  this  inductive  prob- 
lem of  statistics,  let  us  first  revert  to  two  points  of  old 
standing.  Let  us  remember  that  causality  is  not  a  fact 
distinct  from  regularity  of  connection,  and  that  the  proc- 
ess of  inference  is  everywhere  the  same,  whether  we  are 
business  men,  scientists,  or  philosophers. 

Since  causation  is  merely  another  word  for  regularities 
of  recurrence,  statistical  regularity  of  frequency  or  cor- 
relation must  be  just  as  causal  as  laws  of  nature.  Causes 
and  effects  are  simply  terms  for  specific  antecedents  and 
consequents  or  members  in  a  coexistence.  Nothing  else. 
True  however  that  absolute  constancy  of  relations  does 
not  exist  in  the  fields  explored  by  statistics,  and  that  to 
this  extent  causes  or  effects  are  only  partally  designated. 
And  still  more  to  the  point:  Connections  must  show  a 
minimum  of  regularity  before  we  shall  attach  any  "causal" 
significance  to  it.  That  is,  we  shall  not  infer  anything  as 
to  future  recurrences  until  on  the  principle  of  Sufficient 
Reason,  allowing  for  error,  we  feel  justified  in  calling  a 
certain  frequency  causal.  Where  this  is  not  possible 
'*chance"  correlations  may  be  said  to  exist  which  are  not 
really  causal.  We  might  for  instance  notice  the  birthrate 
of  a  certain  country  to  rise  in  the  same  proportion  that  its 


224  A  CRITIQUE  OF  ECONOMICS 

paper  currency  expands.  Or  we  might  be  struck  with  the 
fact  that  in  dealing  cards  the  tallest  men  got  most  of  the 
aces.  Such  numerical  correlations  would  by  most  people 
be  called  accidental,  meaning  non-causal.  Coincidence  or 
chance  would  be  held  responsible.  But  if  we  inquire  seri- 
ously into  the  problem  we  shall  of  course  learn  that  these 
correspondences  between  two  or  more  assignable  variables 
do  not  last.  They  do  not  repeat  themselves;  in  other 
words,  there  is  really  no  constancy  of  relations  qualita- 
tively or  quantitatively  viewed.  Though  we  do  not  ex- 
pect perfect  regularity  of  recurrence,  though  we  know 
that  a  virtually  infinite  "plurality  of  causes"  prevents 
our  finding  all  those  antecedents  which  most  commonly  go 
with  other  specified  consequents — yet  our  general  experi- 
ence prompts  us  to  reject  the  above  mentioned  correla- 
tions as  "causal."  We  grant  that  regularity  is  insuf- 
ficient, and  declare  it  to  be  so  because  of  our  ways  of 
reasoning  which  underlie  all  our  logic.  The  possibility  of 
statistical  causation  however  is  not  affected  by  this  in- 
sistence upon  a  minimum  percentage  of  constancy.  The 
complexity  of  oiir  statistical  units  explains  why  we  are 
satisfied  with  less  than  perfect  regularity.  But  in  gen- 
eral, statistical  relations  are  no  less  nor  more  truly 
"causal"  than  laws  of  nature. 

Laws  of  nature  indeed  are  nothing  but  correlations  of 
a  particular  sort.  "It  is  this  conception  of  correlation 
between  two  occurrences  embracing  all  relationships  from 
absolute  independence  to  complete  dependence,  which  is 
the  wider  category  by  which  we  have  to  replace  the  old 
idea  of  causation."  ^^  The  inherent  mutability  of  organic 
and  social  e\ents  therefore  accentuates  the  difficulty  of 
"  Pearsons,  K.,  "Grammar  of  Science,"  edit,  of  1911,  p.  157. 


THE  METHODS  OF  SCIENCE  225 

finding  those  unexceptional  recurrences  which  are  peculiar 
to  strictly  physical  connections.  Statistical  units  are  not 
only  complex.  They  relate  also  to  processes  which  can- 
not be  reduced  to  purely  mechanical  terms,  to  purely 
quantitative  changes.  Their  dynamic  character  forbids 
it.  We  must  abstract  by  ignoring  classes  of  events  as 
well  as  certain  frequencies  of  occurrence.  Time  itself  is 
a  factor  of  utmost  importance  in  tracing  ultimate 
"causaP'  relations,  for  "everything  in  nature  is  appar- 
ently in  a  state  of  continuous  change,  so  that  what  we 
call  one  *event'  turns  out  to  be  really  a  process.  If  this 
event  is  to  cause  another  event,  the  two  will  have  to  be 
contiguous  in  time;  for  if  there  is  any  interval  between 
them,  something  may  happen  during  that  interval  to  pre- 
vent the  expected  effect."  ^^  Specific  causality  indeed  is 
regularly  concealed  from  us  in  statistical  measurements 
because  of  this  time  factor  and  our  lax  definition  of  it. 

Inference  however  does  not  stop  on  that  account.  In 
all  studies  we  must  reason  and  employ  principles  which 
are  the  stock-in-trade  of  logicians.  Statisticians  too  de- 
pend upon  a  routine  of  inference  which  is,  in  fundamentals, 
exactly  like  that  of  the  laboratory  student.  Our  meas- 
urements of  differences  and  frequencies  are  guided  from 
the  start  by  certain  definite  purposes  and  assumptions. 
They  may  not  be  succinctly  stated,  but  they  exist.  Our 
hypotheses  furthermore  are  influenced  by  our  previous 
knowledge  of  similar  relations,  or  simply  by  associations 
of  sound  and  symbol.  We  cannot  do  entirely  without 
intuition.  We  must  act  on  judgments  for  which  no  im- 
mediate justification  may  be  at  hand.  We  use  the  prin- 
ciples of  Enumeration  and  of  Substitution.    We  resort  to 

»  Russell,  B.,  "Analysis  of  Mind,"  1921,  p.  94. 


226  A  CRITIQUE  OF  ECONOMICS 

reasoning  from  analogy,  since  all  induction  harks  back 
to  such  comparisons  and  classifications  according  to  re- 
semblance and  difference.  We  measure  variables  and  their 
more  or  less  constant  relative  changes  with  hopes  of  veri- 
fying our  results  now  or  later.  Changes  in  the  range  of 
our  series,  in  the  counting  of  frequencies  and  in  our  defi- 
nition of  units  are  the  outcome  largely  of  such  tests  or 
a  cross-reference.  Whatever  steps  may  be  taken  by  the 
physicist  in  directing  his  researches  and  unifying  his  re- 
sults, are  proper  also  for  the  statistician.  The  difference 
between  the  two  kinds  of  investigation  does  not  lie  in  the 
inferential  process  itself,  but  in  the  varying  degree  of 
certainty  attending  their  conclusions.  Induction  and  de- 
duction, hypothecation  and  verification,  an  imputation  of 
causal  values,  and  the  role  of  intuitive  insight — these  are 
always  the  same.  The  grounds  for  generalization  only 
differ. 

Statistics  consequently  is  intimately  bound  up  with 
problems  of  probability.  Aside  from  the  psychological 
aspects  of  probability  or  expectation  ^*  there  are  mathe- 
matical and  empirical-objective  phases  in  statistical  in- 
duction that  must  interest  the  social  scientist  fully  as 
much  as  a  mathematician.  But  let  it  be  understood  right 
here  that  at  bottom  it  is  a  question  of  logic  we  are  con- 
fronted with,  not  one  of  mathematical  technique. 

Mathematical  theories  of  probability  treat  partly  of 

social  events,  but  not  mainly  so.     A  priori  probability 

presupposes  conditions  which  are  not  usually  fulfilled  in 

empirical  statistics.     It  builds  inferences  deductively  on 

a  priori  "knowledge  of  possible  and  favorable  conditions." 

"  Keynes,  "Probability,"  chs.  1-2.  See  also  Jevons,  W.  S.,  "Prin- 
ciples of  Science,"  2d  edit.,  p.  199,  and  Bode,  B.  H.,  "Outlines  of 
Logic,"  1910,  p.  154. 


THE  METHODS  OF  SCIENCE  227 

It  assumes  that  "all  cases  must  be  equally  likely  to  oc- 
cur,'^  15  ^j^(j  reckons  with  few  classes  of  events  as  possi- 
bilities. Whether  the  a  priori  probabilities  of  causal  com- 
plexes are  equal  or  unequal,  generally  speaking  the  num- 
ber of  factors  involved  is  very  small.  A  postulate  of  In- 
sufficient Reason  or  of  Indifference  may  be  invoked,  but 
its  force  will  depend  upon  the  nature  of  materials  used. 

In  the  majority  of  cases,  and  especially  in  the  study 
of  socio-economic  conditions,  an  empirical  a  posteriori 
type  of  induction  is  imperative.  The  final  problem  is: 
How  closely  do  mathematical  probabilities  and  statistical 
frequencies  agree?  Is  the  status  quo,  is  past  experience 
a  key  to  future  happenings  and  numerical  constancies,  or 
must  all  predictions  be  taken  cunn  grano  salis  Tnagno? 

As  is  well  known,  statistical  inquiry  has  proven  the 
existence  of  a  law  which,  to  a  gratifying  degree,  justifies 
some  sort  of  generalization  from  known  frequencies.  A 
Law  of  Large  Numbers  or  of  the  Stability  of  Statistical 
Frequency  does  manifest  itself  in  most  fields,  so  that 
treatises  on  probability  have  more  and  more  gravitated 
about  a  few  standard  theorems  developed  during  the 
eighteenth  (and  early  nineteenth)  century.  The  employ- 
ment of  samples  as  averages  rests  directly  on  this  cir- 
cumstance. We  meet  here  with  a  new  aspect  of  the  prin- 
ciple of  Sufficient  Reason  and  arrive  conversely  at  a  Rule 
of  Successions  which  says :  "As  the  number  of  instances  is 
increased,  the  probability  that  an  event  q  is  in  the  neigh- 
borhood of  q'  tends  toward  certainty;  and  hence,  subject 
to  certain  specified  conditions,  if  the  frequency  with  which 
B  accompanies  A  is  found  to  be  q'  in  a  great  number  of 

"Fisher,  A.,  "Mathematical  Theory  of  Probability"  (transl.  by 
Miss  Dickson,  Ch.),  edit,  of  1922,  p.  18. 


228  A  CRITIQUE  OF  ECONOMICS 

instances,  the  probability  that  A  will  be  accompanied  by 
B  in  any  further  instance  is  also  approximately  q'.'*  ^^ 
But  is  this  inference  necessarily  safe?  Do  large  numbers 
— however  defined — guarantee  recurrences  in  a  high  per- 
centage of  future  cases?  Does  statistical  induction  ap- 
proximate that  of  experimentation? 

In  general  the  answer  might  be  stated  in  the  words  of 
a  competent  critic  as  follows:  "To  argue  from  the  mere 
fact  that  a  given  event  has  occurred  invariably  in  a  thou- 
sand instances  under  observation,  without  any  analysis 
of  the  circumstances  accompanying  the  individual  [italics 
mine]  instances,  that  it  is  likely  to  occur  invariably  in 
future  instances,  is  a  feeble  inductive  argument  because 
it  takes  no  account  of  the  Analogy"  ^^  binding  such  in- 
stances. In  other  words,  though  we  may  ground  our  in- 
ductions upon  assumptions  of  a  finite  world  and  a  finite 
number  of  possible  combinations  of  events,  whose  rela- 
tive weights  and  affinities  are  determinable,^^  yet  the  un- 
certainty of  future  empirical  frequencies  remains.  In- 
ference is  risky,  for  one  thing,  because  "where  an  effect 
is  quantitative,  and  there  are  a  number  of  contributory 
factors  which  one  way  or  another  influence  its  amount, 
fluctuations  in  these  do  not  necessarily  stand  out  in  the 
results."  ^^  Again,  it  is  risky  because  we  are  dealing 
usually  with  an  indeterminate  number  of  classes  of  events, 
and  because  our  temporal  and  spatial  units  are  frequently 
ill-defined.     There  are  many  probabilities,  and  the  prob- 

"  Keynes,  "Probability,"  p.  388. 

"Ibidem,  pp.  367,  392,  and  111.  For  a  similar  view  see  Campbell, 
N.  R.,  "Physics,"  1920,  ch.  7,  and  pp.  212-14. 

^*  Keynes,  "Probability,"  p.  258.  See  also  Fisher,  A.,  "Mathematical 
Theory  of  Probability,"  p.  172,  and  Sigwart,  Ck,  "Logik,"  4th  edit, 
vol.  2,  pp.  706-07.  AH  three  references  show  attempts  to  find  a 
final,  logical  basis  for  statistical  induction. 

*»  Joseph,  "Logic,"  p.  558. 


THE  METHODS  OF  SCIENCE  229 

able  values  of  the  existence  of  events  favorable  to  a  sec- 
ond or  third  event  differ  materially.  At  any  rate  they 
are  unknown.  Again,  our  statistical  series  are  for  the 
most  part  heterograde  in  that  individual  events  possess 
assigned  attributes  in  varying  degrees,  besides  being  per- 
haps heterogeneous  in  other  respects.  Thus  the  assump- 
tion of  equally  possible  cases  is  out  of  place.  We  might 
define  them  as  "cases  in  which  we,  after  an  exhaustive 
analysis  of  the  physical  laws  underlying  the  structure  of 
the  complex  of  causes  influencing  the  specific  event,  are 
led  to  assume  that  no  particular  case  will  occur  in  pref- 
erence to  any  other" ;  ^^  but  little  is  gained  thereby.  It 
is  here  as  with  standard  curves  of  error  which  were  once 
held  to  dominate  all  kinds  of  relations.  We  shall  find 
them  often,  but  not  always.  Skewness  of  dispersion  must 
also  be  taken  care  of.  "The  typical  frequency  curve  in 
all  vital,  social,  or  economic  statistics  is  always  the  bi- 
nomial one;  but  it  will  require  much  investigation  .  .  . 
to  prove  whether  this  supposition  is  right,  or  under  what 
conditions  the  observations  will  show  a  tendency  to  the 
binomial  law."  ^^ 

The  drift  of  statistical  induction  has  therefore  been 
strongly  toward  a  study  of  individual  series  of  events 
and  their  respective  frequencies.  Increasingly  the  prin- 
ciple of  relevance  and  analogy  has  been  honored  in  the 
formulation  of  statistical  laws.  Instead  of  ideal  curves 
of  error  we  discuss  curves  for  particular  classes  of  events, 
relative  to  particular  temporal  series  and  to  averages 
selected  beforehand.     The  necessity  of  subdividing  large 

«»  Fisher,  A.,  "Mathematical  Theory  of  Probability,"  p.  9. 
*^  Westergaard,  H.,  "Scope  and  Method  of  Statistics,"  in  Publicor 
tions  of  American  Statistical  Association,  1916-17,  p.  251. 


230  A  CRITIQUE  OF  ECONOMICS 

blocks  of  variations  and  frequencies  has  suggested  itself. 
Lexian  series  have  come  to  the  fore  and  modified  our  earlier 
views  of  the  value  of  mathematical  probability.  Thus  the 
best  method  for  inference  is  said  to  consist  "in  breaking 
up  a  statistical  series,  according  to  appropriate  prin- 
ciples, into  a  number  of  sub-series  with  a  view  to  analyz- 
ing and  measuring,  not  merely  the  frequency  of  a  given 
character  over  the  aggregate  series  but  the  stability  of 
this  frequency  amongst  the  sub-series.  That  is  to  say,  the 
series  as  a  whole  is  divided  up  by  some  principle  of  classi- 
fication into  a  set  of  sub-series,  and  the  fluctuations  of 
the  statistical  frequency  under  examination  between  the 
various  sub-series  is  then  examined."  ^^  Concessions  of  a 
logical  order  are  thus  made  frankly  by  men  who  pretend 
to  statistical  induction. 

Limitations  should  be  admitted  the  more  freely  since 
much  depends  upon  averages  and  coefficients  which  are  the 
commonest  starting-point  for  generalizations.  Averages 
may  beg  the  question  whenever  they  are  functional  rather 
than  numerical.  As  a  modern  authority  states  the  case: 
"If  masses  of  items,  which  have  evidently  been  variously 
influenced  by  quite  independent  causes,  are  taken  together 
in  a  series,  the  average  so  computed  has  little  scientific 
value  since  it  does  not  express  the  activity  of  a  unified 
complex  of  natural  or  social  causes,  and  is  as  a  rule  poorly 
adapted  to  purposes  of  comparison."  ^^  Offhand  this 
may  seem  a  special  problem  in  the  construction  of  aver- 
ages, but  in  reality  it  opens  up  the  much  larger  question 
of  statistical  induction  for  any  group   of  events.     All 

^  Keynes,  "Probability,"  p.  392. 

^'Zizek,  F.,  "Statistical  Averages"  (Persons,  W.  M.),  pp.  65,  and 
60-120. 


THE  METHODS  OF  SCIENCE  231 

measurements  of  deviations,  all  coefficients  of  dispersion 
and  correlation,^^  all  index-numbers  or  similar  composites 
point  to  shortcomings  that  react  adversely  upon  inference 
as  to  the  future.  Assumptions  me«et  us  everywhere.  Sins 
of  omission  are  probably  greater  than  those  of  com- 
mission. We  are  careless  of  time-lags  and  minor  quan- 
tities of  variation.  We  rely  upon  large  numbers  when 
the  definition  of  "large"  is  arbitrary.  We  classify  events 
without  making  sure  of  their  exact  component  correlates ; 
and  we  ascribe  virtues  to  ratios  which  are  derivative  rather 
than  primary  and  securely  founded. 

Conclusion  on  Statistics. — In  short,  if  a  final  estimate 
of  the  validity  of  statistical  induction  may  at  the  present 
be  ventured  at  all,  it  must  be  with  the  utmost  caution. 
We  should  conclude  that  grounds  for  inference  exist,  and 
that  its  full  value  for  social  sciences  has  not  yet  been  ascer- 
tained, but  we  should  also  emphasize  its  inferiority  to 
experimental  generalizations.  On  all  counts  statistics 
falls  short  of  the  standard  set  by  the  method  of  natural 
sciences. 

Reflection  as  Third  Method. — ^What  was  on  another 
occasion  called  the  method  of  Reflection  gains  therefore 
in  importance,  even  though  it  seems  at  first  thought  very 
unsatisfactory.  It  must  always  be  accorded  a  place  in 
scientific  work  because  the  universe  is  more  than  a  play  of 
mechanical  forces,  and  because  the  problem  of  values  of 
all  sorts  diff^ers  radically  from  that  of  kinetics. 

**A  conservative  view  of  the  inferential  value  of  coeflBcients  of 
correlation,  with  special  mention  of  the  Pearsonian,  is  given  by 
Bowley,  A.  L.,  "Elements  of  Statistics,"  pp.  316-25,  and  by  Keynes, 
J.  M.,  "Treatise  on  Probability,"  pp.  421-27.  See  also  Boas,  F., 
"The  Coefficient  of  Correlation,"  in  Publication  of  American  Statisti- 
cal Association,  1919-20,  p.  683. 


232  A  CRITIQUE  OF  ECONOMICS 

In  reflection  counting  is  subordinated  to  a  correlation 
of  vfLlues,  and  quantitative  to  qualitative  analysis.  We 
are  still  concerned  about  units  or  events,  and  we  have 
again  complexes  of  a  high  order  before  us,  precisely  as 
in  statistics.  But  the  success  of  our  method  does  not 
depend  upon  fine  measurements.  Sometimes  individual 
events  wilt  be  evaluated,  sometimes  groups  of  them.  For 
some  purposes  the  magnitudes  discovered  by  natural  sci- 
ence or  statistics  will  be  revised  because  of  intuitional 
judgments  or  an  exercise  of  freedom  that  grants  more 
to  "moral"  convictions  than  an  exact  reasoner  can  ap- 
prove. Yet  the  usefulness  of  the  method  of  reflection  has 
been  demonstrated  sufficiently.  It  serves  well  wherever 
a  quantitative  analysis  of  relations  is  admittedly  negli- 
gible or  out  of  the  question. 

In  historiography  the  description  of  particulars  plays 
a  notable  role  and  with  rare  exceptions  does  not  terminate 
in  the  formulation  of  laws.  Granting  these  special  cases, 
however,  we  do  well  to  emphasize  the  generalizing  side  of 
reflection.  For  the  most  part  we  seek  not  merely  "causal" 
relations,  that  is  regularities  of  details,  but  also  funda- 
mental principles  and  systems  of  relations.  Our  material 
is  taken  from  the  living  surroundings,  from  the  sphere  of 
hard  facts  which  we  ourselves,  or  others,  gather  for  an 
evaluation.  Reflection  thus  is  more  than  reasoning  of  a 
formal  sort,  since  our  premises  cannot  be  altogether  arbi- 
trary ;  nor  can  our  conclusions  stand  irrespective  of  testi- 
mony to  the  contrary.  Formal  logic  is  not  a  field  for  re- 
flection as  here  defined  and  discussed,  however  true  it  be 
that,  loosely  interpreted,  reflection  forms  a  part  of  all 
inquiry  and  of  all  sciences.  It  is  facts  that  reflection  is 
interested  in,  exactly  as  experimentation  or  statistics  is. 


^  THE  METHODS  OF  SCIENCE  233 

Number  and  order  as  such  do  not  provide  the  kind  of 
problems  that  we  can  solve  only  by  our  third  method  of 
science.  But  whenever  the  conditions  above  mentioned 
are  fulfilled,  whenever  the  factual  relations  are  to  be 
treated  qualitatively  more  than  quantitatively,  whenever 
the  data  directly  before  our  senses  do  not  constitute  our 
subject  matter,  or  at  least  only  a  portion  of  it,  and  when- 
ever our  units  for  correlation  and  generalization  operate 
independently  of  the  laws  of  change  which  basic  natural 
sciences  have  brought  to  our  attention — then  a  field  is 
open  for  reflection. 

Reflection,  in  any  case,  is  not  exempt  from  the  routine 
of  experimentation  and  statistics.  Like  them  it  also 
resorts  to  observation,  even  though  much  of  it  consists  of 
memory  and  recall,  aroused  with  or  without  stimulation 
from  the  outside  world,  and  of  records  transmitted  by 
others,  culled  from  documents  or  books,  or  passed  by  word 
of  mouth.  Furthermore,  like  these  more  familiar  methods, 
reflection  involves  comparison,  analysis,  classification, 
subtraction  and  addition  by  way  of  mental  review,  and 
a  balancing  of  premises  and  conclusions  not  all  of  which 
find  our  approval  in  the  end.  Hypothecation,  deduction 
and  induction;  allowances  for  error  of  fact  or  fancy;  a 
rough  gauging  of  magnitudes  in  so  far  as  we  picture  them 
or  give  them  numerical  expression;  a  search  for  general 
denominators  under  which  we  may  subsume  all  the  data 
deemed  relevant  and  weighty — all  this  is  comprised  in  the 
third  method  which,  while  combining  parts  of  experimen- 
tation and  statistics,  is  yet  different  from  them. 

Creeds  and  viewpoints,  to  be  sure,  will  determine  the 
choice  of  our  materials  more  than  in  the  laboratory,  par- 
ticularly since  verification  by  and  to  the  senses  is  gen- 


234  A  CRITIQUE  OF  ECONOMICS 

erally  out  of  the  question.  But  on  the  other  hand,  reflec- 
tion calls  for  special  qualifications  the  possession  of  which 
is  a  prerequisite  to  attainments  of  a  high  order.  In  the 
discharge  of  those  duties  which  fall  peculiarly  to  the  man 
of  reflection  many  traits  must  be  highly  developed  whose 
value  few  might  suspect.  There  must  be  breadth  of 
knowledge  and  an  excellent  memory ;  a  power  for  abstract 
thinking  whose  prime  test  is  imagination  and  intuition 
paired  with  the  ability  to  see  differences  and  resemblances 
slight  in  degree  and  distributed  over  a  large  range  of 
events ;  patient  care  in  rehearsing  facts  and  a  conscien- 
tious regard  for  the  happenings  of  the  day,  whether  they 
be  trifles  or  portentous  signs  and  symbols.  Whatever  the 
problem  we  launch  upon,  in  reflection  we  must  display  a 
truly  scientific  spirit  or  forfeit  the  chance  of  adding  to 
knowledge.  Theorizing  may  enter  conspicuously  into  our 
work.  Systems  we  may  evolve  and  explain  away  as  we 
please.  But  in  essence  our  procedure  must  be  like  unto 
that  of  the  natural  scientist,  lest  great  possibilities  remain 
unexploited. 

The  possibilities  are  extraordinary  because  contrary  to 
popular  opinion  the  scope  of  experimental  and  statistical 
inquiries  is  narrowly  circumscribed.  The  achievements  of 
physics  and  chemistry  have  blinded  us  to  the  limitations 
of  its  technique ;  but  that  doesn't  make  them  any  the  less 
real.  Not  all  natural  sciences  rely  exclusively  or  mainly 
upon  the  laboratory  method.  Geology  and  biology  for 
instance  must  proceed  largely  by  reflection,  or  relinquish 
the  hope  of  ever  understanding  some  most  important  ques- 
tions ;  and  so  likewise  psychologists.  Wherever  verifica- 
tion by  the  senses  is  impossible  or  quantitative  measure- 
ment less  helpful  than  a  qualitative  correlation  of  events. 


THE  METHODS  OF  SCIENCE  235 

there  introspection  has  its  place  and  will  necessarily  be 
accepted  as  a  fair  substitute  for  exacter  knowledge.  The 
philosophers  in  particular  therefore  have  relied  preemi-  y" 
nently  upon  our  third  method,  although  social  scientists 
have  not  been  far  behind  them  in  this  respect.  And  all 
things  considered  the  results  have  not  been  meager.  On 
the  contrary,  most  of  our  current  interpretations  of  the 
chief  values  of  life  have  been  attained  by  reflection  coupled 
with  statistical  inquiries  as  a  prelimniary  or  last  step. 
Our  view  of  reasoning  and  the  nature  of  human  knowl- 
edge, what  we  believe  with  regard  to  history  and  socio- 
economic processes,*  our  systems  of  logic  or  of  Marginism 
in  economics,  the  leading  doctrines  of  socialism  and  other 
reform  movements,  tenets  in  religion  and  ethics — all  this 
and  more  springs  from  reflection  as  a  distinct  method  for 
systematizing  data  and  basing  conclusions  upon  them. 
Its  shortcomings  of  course  are  almost  self-evident  and  not 
of  a  sort  to  be  obviated  by  diligent  application.  We  need 
never  deny  this.  But  none  the  less  the  virtues  of  reflec- 
tion outweigh  its  vices.  Used  by  a  master  mind  it  will  * 
produce  results  that  have  no  superior  even  in  the  most 
fruitful  of  natural  sciences ;  in  physics  and  chemistry. 


CHAPTER    NINE 
THE  METHODOLOGY  OF  ECONOMICS 

What  is  a  Science? — If  what  has  so  far  been  said  on 
the  subject  of  inference,  law  and  causation  and  the  basic 
methods  of  science  is  in  the  main  correct,  the  discussion 
of  the  methodology  of  some  one  science  like  economics  may 
be  kept  short  without  impairing  greatly  its  usefulness. 
It  must  follow  from  the  general  facts  just  stated  what  the 
scope  and  method  of  a  special  science  is,  or  to  be  more 
precise,  how  we  are  to  proceed  in  deciding  upon  its  field, 
modus  operandiy  and  worth  as  a  pursuit  of  generalized 
knowledge.  The  content  of  general  methodology,  how- 
ever distinctive  in  parts,  must  be  in  essence  like  that  of 
any  one  specified  science.  It  is  only  the  fact  that  ques- 
tions arise  under  a  new  name,  as  for  instance  whether 
economics  is  a  science,  or  how  it  is  related  to  other  social 
studies,  or  what  particular  mode  of  me&3uring  magnitudes 
is  best  adapted  to  it — it  is  only  as  these  new  queries  arise 
that  we  are  prone  to  think  of  each  science  having  a 
methodology  of  its  own,  determined  largely  by  a  body  of 
peculiar  facts. 

The  question,  e.g.,  whether  economics  is  a  science  in- 
volves the  broader  one:  What  is  a  science  anyhow.?  And 
here  our  answer  may  vary  according  to  the  rigor  of  our 
standard.  Or  we  may  candidly  admit  that  definitions  are 
often  no  more  than  an  agreement  without  reason  other 
than  that  of  expediency. 

236 


THE  METHODOLOGY  OF  ECONOMICS     237 

Of  course,  that  science  is  not  merely  knowledge,  or  an 
act  of  learning,  has  regularly  been  pointed  out.  We  can- 
not allow  the  term  "science"  to  be  used  so  vaguely,  if  it 
is  to  serve  any  special  purpose.  We  may  grant  that 
knowledge  of  many  kinds  is  valuable  and  has  been  ac- 
quired according  to  principles  clearly  indicated  and  com- 
mendable to  reason,  but  this  of  itself  does  not  give  us  a 
science.  More  is  involved  than  a  mastery  of  facts  or  a 
routine  of  learning. 

For  the  most  part  students  have  therefore  sought  to 
define  science  along  two  lines,  stressing  either  the  nature 
of  the  results,  or  the  kind  of  methods  used  in  obtaining 
them.  Thus  if  we  rely  chiefly  upon  methods,  it  may  occur 
to  us  that  men  are  not  scientific  unless  they  proceed  by 
experimentation,  adopting  the  laboratory  kind  of  meas- 
urement as  the  road  to  success.  But  would  not  this  re- 
strict the  use  of  the  term  science  unduly,  to  the  exclusion 
of  fields  which  have  proven  of  utmost  importance  to  us 
both  theoretically  and  practically?  For  as  has  already 
been  shown,  there  are  not  many  sciences  that  can  accom- 
plish everything  with  the  experimental  method.  Contrary 
to  a  popular  belief  there  are  so  many  other  subjects  not 
adapted  to  it  that  science  and  experimentation  can  hardly 
be  considered  synonymous. 

In  so  far  as  method  is  any  test,  then,  we  must  think 
either  of  the  laboratory  or  the  statistical  principle  of 
measurement  in  defining  our  term.  Both  kinds  of  method 
have  given  us  valuable  results,  and  both  aim  at  similar 
ends,  though  it  may  not  always  seem  so.  Whether  a  care- 
ful reflection  on  facts,  such  as  philosophers  and  many 
social  scientists  have  practiced  in  developing  their  sys- 
tems of  thought,  should  likewise  be  a  proof  of  scientific 


238  A  CRITIQUE  OF  ECONOMICS 

work,  may  here  be  left  in  abeyance  as  a  question  that 
it  is  difficult  to  answer.  For  who  can  tell  when  reflection 
is  sufficiently  methodical,  and  when  its  results  are  in  any 
degree  comparable  to  those  reached  by  the  other  methods  ? 
Evidently,  no  matter  how  conscientious  our  weighing  of 
arguments  and  facts,  or  our  review  of  the  primary  rela- 
tions submitted  by  scientists,  it  will  be  next  to  impossible 
to  guard  our  steps  as  carefully  as  may  be  done  in  employ- 
ing the  two  other  methods.  At  the  best  we  could  argue 
that  science  is  a  spirit  as  much  as  a  procedure,  and  that  in 
so  far  as  men  aim  at  truth  regardless  of  consequences, 
judging  without  bias  and  holding  themselves  aloof  from 
any  temptation  of  personal  advantage — that  to  this  ex- 
tent every  thinker  may  be  a  scientist.  Yet  one  may  rea- 
sonably object  to  having  the  term  science  construed  so 
liberally,  as  long  as  a  far  better  test  is  available. 

Thus,  the  most  characteristic  feature  of  scientific 
knowledge,  and  hence  of  science  itself,  is  undoubtedly  a 
body  of  theorems  descriptive  of  permanent  relations  which 
provide  a  dependable  ground  for  predictions  or  prac- 
tical applications.  Inquiries  are  scientific,  from  this 
standpoint  of  results,  if  they  aim  at  a  systematization  of 
individual  facts,  ordering  them  into  interdependencies  that 
have  objective  validity,  or  at  any  rate  seem  to  be  real  so 
far  as  circumstantial  evidence  of  diverse  kinds  can  justify 
such  a  belief.  An  inquiry  is  in  effect  a  science,  we  may 
say,  if  it  stresses  correlations  more  than  particulars,  or 
if  it  connects  these  relations  with  an  outside  world  of 
things  and  events  of  which  our  senses  have  some  direct, 
primary  knowledge.  In  so  far  as  we  make  event-com- 
plexes and  their  constitutents,  rather  than  abstracts  of 
our  imagination,  the  subject  for  examination,  in  so  far 


THE  METHODOLOGY  OF  ECONOMICS     239 

are  we  scientists  if  regularities  of  sequence  or  coexistence 
are  discovered.  The  regularities  may  be  absolute  or  rela- 
tive; they  may  read  like  a  first  law  of  thermodynamics, 
or  like  a  law  of  wages  verifiable  by  a  given  amount  of  facts. 
In  either  case,  and  regardless  of  whether  we  have  been 
experimentalists  or  statisticians,  our  claim  to  the  title  sci- 
entist should  be  considered  strong.  A  scientific  spirit 
may  actuate  many  investigators.  The  powers  of  mind 
and  of  observation  may  be  the  very  highest.  But  if  our 
main  body  of  facts  is  not  focussed  in  laws  that  may  be 
empirically  tested,  if  description  of  individual  data  pre- 
ponderates, and  the  conclusions  are  derived  exclusively 
from  explicit  or  implicit  assumptions,  our  work  is  not,  in 
an  acceptable  sense  of  the  word,  scientific.  A  science,  in 
brief,  is  a  body  of  knowledge  organized  into  more  or  less 
verifiable  generalizations  or  laws  pertaining  to  physical 
or  non-physical  events,  the  determination  of  which  depends 
almost  entirely  upon  experiment  or  statistics.  Mathe- 
matics consequently  is  not  a  science,  albeit  a  field  of  meas- 
urement second  to  none  in  importance.  Nor  can  the 
philosopher  be  called  a  scientist,  however  precious  the 
results  that  he  offers  us. 

True,  however,  that  for  most  practical  purposes  it  does 
not  matter  much  whether  we  distinguish  between  science 
as  here  defined,  and  mathematics  or  philosophy  or  some 
other  discipline.  It  is  with  the  definition  of  the  term  sci- 
ence as  with  labels  in  general:  If  we  know  what's  in  the 
container  the  label  is  not  necessary.  All  definitions  are 
agreements,  although  the  description  they  give  us  of  the 
subject  varies.  The  differences  in  the  world  about  us  are 
important,  perhaps  decisive  for  our  weal  and  woe;  the 
nomenclature  we  invent  to  indicate  these  differences,  a  de- 


240  A  CRITIQUE  OF  ECONOMICS 

tail.  Though  economy  urges  us  to  coin  words ;  though 
progress  depends  somewhat  upon  our  symbols  for  iden- 
tification and  differentiation;  though  nothing  is  more 
attractive  than  a  nicely  worded,  exhaustive  definition  in 
an  argument — the  chief  concern  of  every  student  must  be 
his  understanding  of  diff^erences  or  likenesses.  If  we 
know  that  one  field  of  investigation  differs  from  another 
in  certain  assignable  respects,  and  what  the  consequences 
of  these  differences  for  other  ends,  our  terminology  is 
no  more  than  a  convenience. 

On  Social  Science. — But  granting  that  the  term  science 
is  flexible,  and  that  several  tests  for  a  science  exist,  what 
is  to  be  said  on  the  possibility  of  a  social  science,  or  of 
a  science  of  economics? 

Some  economists,  and  notably  German  economists,  as 
was  shown  elsewhere,^  accepted  the  opinion  of  a  lead- 
ing group  of  philosophers  that  there  could  be  no  such 
thing  as  a  social  science,  or  at  any  rate  that  law  and 
causation  were  impossible  in  the  sphere  of  social  events, 
since  will  and  purpose  created  an  unbridgeable  chasm 
between  the  constants  of  physical  nature  and  the  vari- 
ables of  history.  A  distinction  was  made  between  realms 
where  law  reigned,  and  others  where  all  events  represented 
but  the  values  of  a  feeling,  planning,  rational  being. 
Between  these  two  sets  of  facts  a  barrier  was  believed  to 
exist,  a  barrier  insurmountable  and  calculated  to  divide 
all  pursuits  of  knowledge  into  two  classes,  viz.,  the  ideo- 
graphic and  nomothetic.  It  was  asserted,  and  repeated 
by  some  economists,  that  a  scientist  aimed  at  the  estab- 
lishment of  types  of  events,  while  in  the  study  of  social 
events  the  particular  necessarily  absorbed  our  attention, 
*  See  ch.  1  of  this  book. 


THE  METH0D0L(3GY  OF  ECONOMICS     241 

making  impossible  the  formulation  of  broad  principles 
or  of  laws  in  the  exact  sense  of  the  word. 

What  is  to  be  said  on  this  question,  judging  by  facts 
previously  considered? 

In  the  first  place  clearly,  we  must  agree  to  the  distinc- 
tion between  physical  and  social  laws.  The  eighteenth  > 
century  attempt  at  uniting  mind  and  matter  for  the  pur- 
pose of  extending  Newtonian  principles  into  the  realm  of 
psychics  should  not  be  pressed  any  further.  It  is  evident 
from  a  variety  of  data  that  laws  of  social  happenings, 
if  they  do  exist,  cannot  be  directly  derived  from  the  sort 
of  associations  which  psychology  studies,  and  for  which 
a  physiological  explanation  has,  with  some  success,  been 
offered.  There  is  an  indissoluble  tie  between  mind  and 
matter,  but  it  does  not  allow  us  to  identify  the  two,  nor 
to  stake  our  whole  fortune  on  monism.  Especially  from  ^ 
a  methodological  standpoint  is  dualism  an  indispensable 
article  of  faith,  a  device  by  which  we  may  hope  to  elimi- 
nate many  of  the  errors  characteristic  of  sensationalism, 
and  without  which  human  history  can  never  assume  a  defi- 
nite meaning.^ 

But  in  the  second  place,  this  does  not  commit  us  to  any 

such  classification  of  science  as  Voluntarists  have  favored, 

nor  to  the  other  idea  closely  allied  with  it  that  events  are 

either  a  problem  for  historians  or  for  scientists,  but  not 

for  both.     It  is  illogical  to  divide  all  investigations  into 

the  nomothetic  and  the  ideographic,  for  it  follows  from 

the  nature  of  law  and  causation  that  one  and  the  same 

^  For  a  present-day  statement  of  the  difference  between  psychic  V 
and  physical  laws  see  Russell,  B.,  "Analysis  of  Mind,"  1921,  p.  301. 
On  the  dialectic  of  social  process  see,  e.g.,  Schiller,  F.  C.  S.,  "Studies 
in  Humanism,"  pp.  438-39,  and  Wundt,  W.,  "Logik,"  edit.  1895,  vol. 
II,  p.  510.  For  a  monistic  evolutionary  naturalism  see  Sellars,  R.  W., 
in  Monist,  April,  1921. 


242  A  CRITIQUE  OF  ECONOMICS 

material  may  be  studied  either  for  the  types  of  recur- 
rences that  it  contains,  or  for  the  unique  events  which, 
apparently  or  really,  owe  nothing  to  law,  and  everything 
to  will. 

No  data  are  intrinsically  "scientific"  or  "historical," 
since  knowledge  is  non- representative  in  an  epistemological 
sense,  a  product  of  mind  rather  than  an  objective  datum. 
What  is  known  of  the  processes  of  feeling,  perception, 
imagination  and  reasoning  strengthens  this  belief.  Laws 
may  obtain  anywhere,  since  every  theorem  presupposes 
a  knower  no  less  than  something  knowable.  It  is  not  a 
law  here  and  an  isolated  fact  there  that  creates  a  science 
of  physics  or  an  historical  narrative,  but  our  determina- 
tion to  view  events  from  different  angles,  on  the  basis 
of  certain  assumptions,  perhaps  for  specified  purposes. 
Almost  all  objects  and  relations  have  a  past,  and  hence 
lend  themselves  to  an  historical  treatment.  We  may  care 
about  nothing  else  but  this  succession  of  individuals  whose 
,  outer  aspect  shows  continuity,  and  whose  inner  meaning  is 
either  determinism  or  free-will.  However,  we  may  also 
decide  upon  a  search  for  regularities,  of  inter-relations 
that  are  as  true  to-day  as  yesterday,  and  as  valid  for  the 
distant  future  as  for  the  present.  It  will  be  for  us  to 
shape  our  inquiries  accordingly,  to  select  the  data  that 
do  show  such  relations  and  degrees  of  constancy,  and  to 
hazard,  on  one  ground  or  another,  a  calculation  of  prob- 
abilities. We  may  reject  the  associational  theory  of  con- 
sciousness and  of  social  events,  and  yet  believe  in  the 
possibility  of  social  laws.  We  may  accept  the  doctrine 
of  a  human  will  which  is  at  odds  with  the  postulates  of 
a  mechanistic  philosophy,  and  still  be  interested  in  a 
quest  for  social  laws.    Indeed,  the  statistical  approach  to 


THE  METHODOLOGY  OF  ECONOMICS     243 

this  subject  has  tended  strongly  to  convince  doubters. 
It  is  not  dualism  in  any  form  that  compels  us  to  divide 
fields  of  research  into  two  groups,  but  a  particular  va- 
riety of  idealism  whose  zeal  has  overshot  its  mark. 

Put  differently:  There  is  reason  for  drawing  a  line 
between  natural  and  social  sciences,  broadly  taken,  but 
hardly  a  reason  for  imputing  objectivity  and  subjec- 
tivity to  different  sets  of  events.  What  impels  us  to 
make  a  distinction  between  physical  and  psychic  or  pos- 
sibly organic  sciences  is  the  undoubted  fact  that  they 
represent  two  quite  different  kinds  of  units  for  correla- 
tion, for  measurement.  In  the  one  group  we  have  a  few 
units  definitely  known,  subject  to  observation  with  or  with- 
out the  aid  of  instruments,  and  measurable  with  a  high 
degree  of  accuracy;  in  the  other  we  have  a  much  larger 
number  of  units  about  whose  homogeneity  we  cannot  be 
certain,  but  whose  unfitness  for  experimental  isolation 
and  variation  is  beyond  dispute.  Thus  we  generalize 
about  the  first  as  we  dare  not  about  the  second  class 
of  events.  We  have  a  feeling  that  law  is  real  in  the 
one  case,  and  out  of  the  question  in  the  other.  We  talk 
of  causation  as  if  it  inhered  in  the  physical  data,  forget- 
ting that  cause  and  effect  are  names  for  items  that  con- 
stitute a  law,  and  not  anything  else;  or  forgetting  that 
all  happenings  are  equally  causal  or  non-causal  accord- 
ing to  our  interpretation  of  terms.  What  differences  exist 
between  human  and  other  events  consist  therefore  not 
of  the  presence  and  absence  of  law,  but  of  degrees  of  regu- 
larity and  of  definiteness  of  correlation,  most  social  laws 
being  in  this  sense  "empirical,'^  while  physics  or  chemis* 
try  may  expect  to  reduce  all  types  of  interactions  to 
exacft  magnitudes  and  equations. 


2U  A  CRITIQUE  OF  ECONOMICS 

It  is  thus  fair  enough  to  speak  of  "tendencies' 
nomics  and  of  rigid  laws  elsewhere,  but  we  should  under- 
stand, first,  that  the  term  does  not  mean  an  uncompleted 
action,  and  secondly  that  social  laws  represent  in  no  wise 
a  composition  of  forces,  an  average  of  arithmetical  units, 
or  a  plus  of  psychics  neutralized  by  a  minus.  The  view 
which  J.  S.  Mill  took  of  empirical  economic  laws  was 
colored  by  his  belief  in  a  mechanics  of  perception  and 
ideation.^  It  made  him  hope  that  a  science  of  ethics 
and  sociology  had  but  to  wait  for  a  sufficiently  thorough 
study  of  the  laws  of  feeling  and  thought,  in  order  to  rival 
the  attainments  of  the  inductive  sciences. 

Again,  it  follows  from  the  nature  of  law  and  causation 
I  that  economists  must  abandon  all  doctrines  of  imputation 
I  anent  productivity  and  the  price  of  services.  Not  only 
IS  it  foolish  to  argue  about  the  relative  importance  of 
agents  operating  jointly  in  the  creation  of  a  good  or  in 
the  gratification  of  a  want,  but  more  especially  must  we 
reject  an  attempt  at  an  ethical  imputation.  John  Stuart 
Mill  to  be  sure  averred  frankly  that  "when  two  condi- 
tions are  equally  necessary  for  producing  the  effect  at  all, 
it  is  unmeaning  to  say  that  so  much  is  produced  by  one, 
and  so  much  by  the  other.  It  is  like  attempting  to  decide 
which  ...  of  the  factors  five  or  six  contributes  most  to 
the  production  of  thirty.'*  ^  Yet  this  opinion,  which 
probably  every  economist  would  have  subscribed  to  as  an 

'Find  key  to  this  in  Mill,  J.  S.,  "Logic,"  Book  III,  ch.  10,  §§5 
and  8;  Book  VI,  ch.  7,  §  1,  and  ch.  9,  §§  1-3,  and  ch.  10,  §  3. 

*  "Principles  of  Political  Economy,"  Book  I,  ch.  1,  §  3.  See  also 
Gide,  Ch.,  and  Rist,  Ch.  (transl.  by  R.  Richards,  pub.  by  D.  C. 
Heath  &  Co.),  "History  of  Economic  Doctrines,"  p.  519.  See  also 
statement  by  Veblen,  Th.,  in  paper  read  before  Kosmos  Club,  Univ. 
of  Cal.,  1908:  "Causation  is  a  fact  of  imputation,  not  of  observa- 
tion." 


THE  METHODOLOGY  OF  ECONOMICS     245 

abstract  proposition,  did  not  deter  many  from  laying 
down  exact  rules  for  finding  the  several  individual  parts 
of  a  joint  product,  or  for  assigning  to  specific  parties  so 
much  of  a  share  of  income  on  the  grounds  of  an  imputed 
productivity.  In  questions  of  value  no  less  than  in  ques- 
tions of  physical  production  the  principle  of  ascription 
found  a  prominent  place.  What  Menger  and  Wieser^ 
among  the  founders  of  Marginism  prescribed  as  logical 
devices  for  distributive  analysis  elicited  the  favorable  com- 
ment of  later  writers.  The  uselessness  of  the  plan  was 
not  fully  realized  except  occasionally  a  propos  of  an 
ethical  treatise;  and  the  chief  reason  for  this  unwilling- 
ness to  abandon  imputation  was  probably  the  view  of 
causation  inherited  from  the  eighteenth  century,  and 
transmitted  in  modified  form  to  later  generations  by 
J.  S.  Mill.  Certainly  in  economics  his  influence  was  para- 
mount. ^ 

But  to  pass  over  now  to  a  weightier  topic  in  things 
methodological. 

How  to  Delimit  the  Scope  of  Sciences. — Economists 
have  always  been  interested  in  a  delimitation  of  their  sci- 
ence, not  merely  because  every  scientist  is  likely  to  be,  but 
also  because  of  the  nature  of  their  subject  matter.  The 
relation  between  economics  and  other  social  sciences,  or 
between  either  and  psychology  or  ethics  has  regularly 
been  discussed  in  the  more  pretentious  European  treatises. 
What  then  is  to  be  our  comment  in  the  light  of  the  leading 
facts  of  law  and  causation? 

As  regards  the  sciences  in  general  it  will  occur  to  us 
first  of  all  that  the  organic  and  inorganic  fields  may  well 
be  kept  distinct,  even  though  an  exact  definition  of  life 
is  hard  to  give.     The  social  sciences  may  also  be  sepa- 


246  A  CRITIQUE  OF  ECONOMICS 

rated  from  the  natural,  not  in  the  manner  suggested  by 
the  Voluntarists  of  Germany  of  whom  something  has 
just  been  said,  but  on  the  ground  that  man  is  the  center 
of  all  experiential  data  and  himself  their  only  inter- 
preter. Furthermore,  it  is  not  unreasonable  to  arrange 
the  fundamental  sciences  in  a  single  progressive  order, 
that  is  in  a  line  beginning  with  the  minimum  number  of 
concepts  essential  to  research,  and  ending  with  the  sci- 
ence which  makes  use  of  some  of  the  basic  concepts  of  all 
preceding  sciences.  We  should  thus  have  mathematics 
first,  as  dealing  with  spatial  magnitudes  and  number,  then 
physics  which  adds  mass  and  motion  in  time,  then  chem- 
istry dealing  with  elements  and  compounds  in  transforma- 
tion, then  biology  as  the  field  of  life  in  forms  lower  than 
life  and  devoid  of  self-consciousness;  then_psychology 
which  uses  many  of  the  ideas  just  mentioned,  in  addition 
j^  A  to  self-conscious  behavior;  and  finally  the  social  sciences 
,|  treating  of  inter-individual  human  relations,  inclusive  per- 
haps of  melioristic  valuations. 

Or  we  might  essay  a  delimitation  of  sciences  according 
to  tangible  objects  studied,  thus  differentiating  between 
astronomy,  crystallography,  botany,  zoology,  and  geol- 
ogy. In  a  measure  this  principle  would  be  satisfactory, 
provided  we  did  not  include  all  the  sciences,  nor  think 
of  special  fields.  For  if  we  did  we  should  notice  that 
biology,  e.g.,  embraces  cytology,  histology,  bacteriology, 
and  genetics;  that  the  subject  of  man  comprised  psy- 
chology, history,  and  several  social  sciences,  and  that 
again  histology  covered  botanical  and  zoological  facts  no 
less  than  those  of  human  anatomy.  Furthermore,  we 
might  remember  the  haziness  of  boundary  lines  at  cer- 
tain points  between  chemistry  and  physics,  or  biology  and 


THE  METHODOLOGY  OF  ECONOMICS     247 

psychology,  to  say  nothing  of  other  less  simple  disciplines. 
So  after  all  the  identification  of  each  science  with  a 
particular  class  of  concrete  objects  perceivable  by  our 
senses  would  prove  embarrassing. 

A  better  approach  to  the  problem  will  be  made  if  we 
start  with  an  illustration  something  like  this.  Suppose 
we  point  to  an  oak  tree  and  ask  ourselves:  What  sci- 
ences, or  how  many  sciences,  have  to  deal  with  that  object.? 
We  should  then  have  to  admit  that  such  a  single  object 
may  furnish  food  for  thought  to  several  kinds  of  investi- 
gators. Except  that  mathematics  does  not  really  treat 
of  empirical  facts,  we  could  grant  that  a  mathematician 
might  use  the  tree  for  studying  spatial  relations  of  a 
certain  class,  say  cylinders,  cones,  etc.  A  physicist  would 
obtain  possibly  laws  of  gravity,  light  and  color  from  it,  or 
try  to  explain  why  the  sap  is  able  to  rise  against  gravity. 
The  chem.ist  would  have  his  compounds,  their  make-up  and 
stages  of  metamorphosis;  the  biologist  a  set  of  growth 
facts  for  morphology  and  pathology,  etc. ;  while  an  econ- 
omist could  discuss  value  and  cost  relative  to  soil  and 
site,  or  problems  of  reproduction.  In  short,  one  and 
the  same  item — in  this  case  the  tree — would  become  the 
concern  of  a  number  of  scientists. 

What  then  is  back  of  this  significant  fact?  We  must 
reply  of  course:  Science  studies  relations  rather  than 
objects  of  common  sense  perception,  and  units  following 
a  mechanical  law  or  expressable  as  functions  of  variables 
rather  than  things  discrete  in  space.  Each  science  selects 
types  of  units  and  of  quantitative  correlations,  seeking 
as  many  instances  of  them  as  possible.  We  may  conceive 
these  units  or  groups  of  events  as  we  please,  describing 
them  as  seen  directly  by  the  eye,  or  analyzing  them  in  the 


248  A  CRITIQUE  OF  ECONOMICS 

manner  of  a  chemist.  But  once  we  have  chosen  a  certain 
class  of  units  of  inter-relations  we  shall  be  compelled  by 
the  facts  to  connect  one  instance  with  another,  until  grad- 
ually large  numbers  of  laws  or  correlations  are  found, 
many  of  them  to  be  subsumed  under  one  general  denomi- 
nator such  as  force  and  motion  or  gravitation,  energy, 
etc.  For  the  natural  sciences  all  laws  may  ultimately 
focus  in  a  single  concept  such  as  electricity  or  matter-in- 
motion,  so  that  somewhere  the  several  originally  distinct 
inquiries  blend  indistinguishably. 

Other  fields  however  will  always  be  distinct,  though 
commingling  with  one  another  at  certain  points.  No 
hard  and  fast  lines  can  be  traced  because  of  the  flux  and 
complexity  of  the  units  involved.  Time  and  space  units 
being  vague  or  incalculable,  variability  being  part  of 
the  units  and  of  the  event-complexes,  while  conditioning 
phenomena  with  respect  to  each  correlation  escape  meas- 
urement, it  follows  that  a  definite  territory  for  every  sci- 
ence cannot  be  mapped  out.  It  may  seem  so  at  first,  and 
a  priori  such  clearly  marked  bounds  may  be  prescribed. 
But  as  the  data  increase  and  are  being  classified  more 
and  more  nicely  according  to  frequencies  or  degrees 
of  regularity,  such  dogmatism  falls  into  disrepute. 
Especially  where  mass-measurements  are  the  rule  our 
nominally  distinct  fields  of  inquiry  will  overlap  in  places, 
or  coalesce  in  spite  of  the  arguments  of  logicians. 
Thus  changes  in  the  socio-economic  environment  will  not 
be  without  effect  on  the  scope  of  the  science  in  question. 
If  old  facts  disappear  and  new  ones  rise  to  the  surface,  our 
correlations  will  have  to  be  revised  accordingly.  It  need 
not  be  imagined  that  the  units  of  the  organic  and  social 
world  studied  by  the  method  of  statistics  or  reflection  will 


THE  METHODOLOGY  OF  ECONOMICS     249 

change  objectively,  or  enter  into  new,  more  or  less  per- 
manent quantitative  relations,  without  its  reacting  upon 
our  sphere  of  inquiry.     That  is  not  likely. 

The  Scope  of  Economics. — Thus,  to  illustrate  the  prin- 
ciple before  touching  upon  the  relation  of  economics  to 
psychology  and  ethics,  suppose  we  assume  a  very  differ- 
ent set  of  economic  data  from  those  now  surrounding  us. 
Suppose  for  instance  all  things  useful  to  man  were  plenti- 
ful, so  that  no  work  need  be  done  voluntarily.  Or  sup- 
pose absolutely  everything  were  produced  to  be  sold  in 
the  open  market,  or  on  the  contrary  that  nothing  were 
so  exchanged.  Or  again  suppose  that  prices  for  all  goods 
and  services  were  fixed  by  the  government.  Would  the 
scope  of  the  economist's  inquiry,  would  the  nature  of  his 
correlations,  would  the  existence  of  his  science  be  af- 
fected ?  The  answer  must  be  in  the  affirmative  for  the  first 
of  our  questions,  but  negative  for  the  last.  That  is 
to  say,  owing  to  new  data  coming  upon  the  scene  and  the 
old  ones  disappearing  our  qualitative  and  quantitative 
formulae  both  would  look  different,  would  be  changed  in 
composition,  degree  of  regularity  and  perhaps  perma- 
nency. We  should  have  a  new  set  of  correlates  and  con- 
ditioning facts  attending  any  one  particular  economic 
law.  But  economics  as  a  whole  would  not  be  abolished  by 
such  substitutions  of  one  regime  for  another.  Some  facts 
would  remain  as  before.  Men  would  still  live  by  means 
of  products  and  efforts.  A  residuum  of  activities  would 
endure  which  could  always  be  made  the  subject  of  a  study 
to  be  known  as  economics — or  anything  else  we  like. 

Hence  it  is  not  impossible  or  illogical  to  assign  to  an 
investigator  a  select  group  of  data  for  analysis  and  re- 
duction to  types.     We  can  always  do  this  and  pick  out 


250  A  CRITIQUE  OF  ECONOMICS 

any  complex  of  events  within  our  experience.  But  once 
we  have  given  a  name  to  a  science  of  a  particular  type  of 
facts,  many  additional  data  will  belong  to  it  and  to  no 
other  science  because  of  their  factual  measurable  con- 
nection with  the  type  of  correlations  selected.  Thus  we 
may  decide  upon  a  study  of  the  facts  of  consumption  and 
roduction,  linking  the  first  with  biopsychological  traits, 
nd  the  second  with  the  physical  environment.  The  rela- 
tions and  regularities  inherent  in  these  two  sets  of  facts 
can  hardly  be  imagined  outside  of  life  itself,  and  hence 
leave  a  minimum  for  investigation  regardless  of  what  al- 
terations are  made  in  particular  institutions.  But  how 
f^roduction  and  consumption  are  to  be  defined,  what  data 
in  valuation,  exchange,  price  and  distribution  or  public 
control  must  be  related  with  them — this  is  a  distinct  and 
subordinate  question.  Absolutely  rigid  limits  cannot  be 
set  for  a  study  of  units  and  correlations  as  complex  and 
mnstable  as  those  of  human  activities.  There  is  no  a  priori 
/ground  on  which  we  may  condemn  the  exclusion  of  all 
/non-exchange  data.  But  neither  can  there  be  any  ob- 
jection from  another  viewpoint  for  extending  our  inqijiries 
over  much  more  than  catallactics.  "TTlnen  must  have  goo( 
furnished  freely  by  nature  or  procured  by  effort,  if  th^ 
use  of  such  things  involves  ownership  and  further  legal 
rights,  if  at  a  given  time  production  implies  certain  modes 
of  living,  valuations  and  central  control,  then  these  event- 
complexes  may  be  indissolubly  intermingled  withv_ph^ 
nomena  of  exchange.  There  is  nothing  for  us  to  do  but 
to  find  out  what  regularities  are  lodged  in  such  varieties 
of  interrelations,  and  then  to  state  the  scope  of  economics 
accordingly. 

On  account  of  the  modern  view  of  human  nature  the 


THE  METHODOLOGY  OF  ECONOMICS     251 

catallactic  analysis  certainly  is  no  longer  in  good  odor. 
We  are  willing  to  acknowledge  that  man  is  more  than  a 
consumer  or  producer  of  scarce  things,  therefore  plead 
for  a  broader  conception  of  political  economy.  Yet  it^ 
should  not  be  supposed  that  psychology  as  a  science  is 
a  prerequisite  to,  or  logical  basis  of,  economics ;  for  that 
would  be  a  lapse  back  into  a  methodology  altogether  out 
of  keeping  with  our  present  knowledge.  Not  the  science 
of  psychology,  but  a  certain  fund  of  psychological  data, 
will  prove  useful  to  economists.  Psychological  aspects 
undoubtedly  form  part  of  their  field  of  research.  But 
it  would  be  fallacious  to  argue  from  these  to  a  closer 
relation  between  the  two  disciplines.  Indeed,  in  one  sense 
all  facts  are  psychological,  and  in  a  second  there  is  noth- 
ing psychological  but  it  is  gleaned  partly  from  other  sub- 
jects. The  professional  psychologist  himself  relies  largely 
upon  economic  data  for  expounding  his  theorems,  and  his 
obligations  to  modern  sociology  stand  out  strikingly 
enough.  But  we  should  bear  in  mind  at  the  same  time 
that  psychology  deals  with  the  individual,  relates  body 
to  mind  in  the  individual,  or  mind  with  mind  among  dif- 
ferent individuals  as  such,  or  is  nothing  but  physiology. 
So  it  cannot  very  well  be  confused  with  economics  which 
is  interested  in  inter-individual  relations  regarding  physi- 
cal events  and  rights  and  forms  of  behavior  foreign  to 
psychology. 

Neither  should  it  be  difficult  to  see  a  difference  between 
sociology   and   economics,^   although  between   these   two 

"  On  scope  of  sociology  and  its  relation  to  economics  there  is  a 
large,  though  chiefly  periodical,  literature.  See  among  others  the 
following:  Durckheim,  E.,  "Les  Ragles  de  la  M6thode  Sociologique," 
3.  edit.,  1904,  p.  157  ff.;  Spencer,  H.,  "Study  of  Sociology,"  1873, 
chs.  4-6;  Giddings,  F.  H.,  "Prmciples  of  Sociology,"  1896,  Book  I; 


252  A  CRITIQUE  OF  ECONOMICS 

the  line  of  demarcation  is  even  harder  to  draw  than  be- 
tween economics  and  psychology.  If  we  may  judge  by 
late  developments  in  sociology,  it  links  up  more  intimately 
with  psychology  than  with  economics,  while  on  the  other 
hand  some  topics  are  common  to  both  sociology  and 
economics.  What  is  social  psychology,  sociology  or  psy- 
chology? That  may  be  a  baffling  question.  But  we  are 
safe  in  saying  that  sociology  is  to-day  a  better  organized 
discipline  than  in  Comte's  age,  and  that  economics  is  on 
the  contrary  not  as  sure  of  itself  as  a  generation  ago. 
What  merits  our  attention  chiefly  is  the  strong  tendency 
among  sociologists  toward  qualitative  analysis,  while  econ- 
omists incline  increasingly  toward  a  quantitative  anal- 
ysis. That  economists  may  learn  much  for  their  purposes 
from  the  sort  of  analysis  exemplified  in  the  latest  socio- 
logical texts  is  quite  certain;  but  that  for  this  reason 
they  should  lose  sight  of  their  own  peculiar  realm  is 
highly  improbable.  The  sociologist  may  treat  of  all 
rfegularities  or  individual  data  within  society,  and  so  dare 
I  claim  a  very  large  field.  Why  not?  But  in  so  doing  he 
lis  almost  certain  to  touch  upon  facts  which  also  concern 
the  economist  who  studies  a  more  specific  and  different 
type  of  correlation,  namely  one  centering  around  facts 
of  consumption  and  production.  The  complexity  and 
variability  of  the  units  examined  by  social  students  is, 
once  more,  a  major  reason  for  a  blurred  boundary  line 
between  economics  and  sociology.  Yet  the  overlapping 
will  be  harmless ;  nor  can  sociology  be  said  to  provide^. 

and  Publications  of  Am.  Sociological  Society,  December,  1920,  pp. 
60-67.  Small,  A.  W.,  "Meaning  of  Social  Science,"  1910,  and  Lect. 
II ;  and  article  on  "Future  of  Sociology,"  in  Pub.  of  Am.  Soc.  Society, 
December,  1920,  pp.  174-93;  and  his  "Adam  Smith  and  Modern 
Sociology,"  1907,  pp.  198,  200,  237,  77. 


THE  METHODOLOGY  OF  ECONOMICS     253 

logicaLindispensable  gj:xiLLindwork^or  economists.  ThereV 
will  be  cross-references,  but  not  a  progression  from  the  / 
more  general  problems  of  one  science  to  the  less  general/ 
of  the  next.  '^ 

The  possibility  and  expediency  of  a  distinction  be- 
tween the  several  social  sciences  suggests  itself  still 
more  clearly  with  regard  to  the  relation  between  eco- 
nomics and  politics  or  history  or  ethics.  But  since  the 
first  two  have  always  been  sharply  defined  we  need  con- 
sider only  the  ethical  problem,  which  has  often  proved 
vexing. 

Economics  and  Ethics. — Economics  was  historically 
developed  from  ethics,  and  so  it  is  perhaps  no  wonder  that 
the  question  of  the  right  relation  between  the  two  offered 
great  difficulties,  some  deeming  them  worlds  apart,  while 
others  felt  them  to  be  almost  inextricably  interwoven. 
It  took  centuries  before  the  data  of  human  life  were  effec- 
tually separated  from  Christian  norms  and  moral  judg- 
ments in  general.  As  every  economist  knows,  the  divorce 
was  not  easily  accomplished;  nor  was  it  at  all  certain 
at  first  that  Adam  Smith  had  broken  resolutely  with  tradi- 
tion. The  Physiocrats  undoubtedly  treated  economic  facts 
as  facts  only,  inspired  by  ideas  that  were  taken  over  in- 
directly from  the  physicists  and  physiologists.  They 
naturally  made  of  human  events  an  expression  of  physical 
laws.  Adam  Smith  however  must  have  found  the  dif- 
ference between  ethics  and  economics  less  momentous,  and  ^ 
indeed  made  of  his  survey  a  theory  of  prosperity  rather 
than  a  cold-blooded  analysis  of  objective  realities.  So  it 
was  not  until  the  beginning  of  the  nineteenth  century  that 
economics  was  definitely  sundered  from  all  moral  judg- 
ments, and  raised  to  the  rank  of  an  independent  science 


254  A  CRITIQUE  OF  ECONOMICS 

that  had  a  field  as  broad  and  yet  clear-cut  as  any  of  the 
older  disciplines. 

Again,  the  nature  of  the  problem  of  ethics  and  eco- 
nomics was  rarely  stated  in  definite  terms.  What  at  first 
had  seemed  to  be  an  easy  distinction,  eventually  was 
beclouded  by  a  failure  to  differentiate  properly  between 
an  ethical  judgment  of  facts  and  the  origin  of  such  ethical 
judgments.  Some  believed  economics  to  be  a  moral  sci- 
ence because  they  wished  their  subject  matter  to  conform 
to  an  ethical  standard.^  Merely  for  this  reason  did  they 
make  out  of  economics  a  moral  discipline.  Others  more 
or  less  vaguely  discerned  a  difference  between  economic 
facts  and  moral  norms,  but  confused  Applied  Economics 
with  ethics,  presumably  because  of  the  purposive  element 
in  such  applications.''^  A  third  group  avoided  these  blun- 
ders, but  only  to  make  the  mistake  of  deriving  its  norms 
systematically  from  social  science.  They  understood  ap- 
parently the  issue,  but  identified  human  nature  with  the 
Ultimate  Good  in  the  manner  of  hedonists  and  the  Brit- 
ish empiricists.  Now,  what  must  be  our  stand  to-day  on 
this  issue,  considering  the  history  of  both  of  economics 
and  of  researches  elsewhere  .^^ 

As  between  the  formalism  of  Kantian  ethics  and  the 
content-ethics  of  other  schools  there  is  no  doubt  that 
the  latter  alone  has  so  far  met  the  test  of  inner  consistency. 
Whenever  the  spirit  of  the  thought  or  deed  has  been  taken 

"A  view  expressed  by  Paulsen,  F.,  "System  of  Ethics"  (translated 
by  Thilly,  F.),  p.  4.  See  also:  Dewey,  J.,  and  Tufts,  J.  H.,  "Ethics," 
Part  II,  chs.  22-4>;  Stuart,  H.  W.,  in  "Creative  Intelligence,"  a 
symposium  by  several  writers,  1917,  p.  352;  and  Small,  A.  W.,  "Mean- 
ing of  Social  Science,"  pp.  227-39.  One  is  reminded  of  the  His- 
torical school  of  economists  in  this  connection. 

'"Sociology  as  Ethics,"  by  Hayes,  E.  C,  1921;  EUwood,  Ch.  A., 
"Sociology  in  Its  Psychological  Aspects,"  1912,  p.  40;  Bernard,  L.  L., 
in  Am.  J.  of  Soc,  1919,  pp.  298-325. 


THE  METHODOLOGY  OF  ECONOMICS     255 

as  the  sole  mark  of  goodness  the  question  at  issue  has 
really  been  begged.  A  purely  subjective  norm  of  loyalty 
to  duty  or  to  conscience  cannot  carry  the  day  unless  we 
know  beforehand  that  our  sense  of  duty  is  of  the  right 
sort,  our  conscience  an  infallible  oracle.  To  strive  with 
all  one's  might  toward  the  good,  as  intuited,  is  vain  unless 
life  itself  is  negligible  or  else  the  means  toward  its  fur- 
therance given  in  the  very  mandates  of  our  inner  voice. 
Only  then  would  a  realization  of  the  law  be  the  whole 
of  virtue,  compared  to  which  other  ideals  shrink  into  insig- 
nificance. 

But  evidently  this  straight  road  to  goodness  cannot 
be  taken  by  human  beings  who  are  not  only  weak-willed, 
but  also  devoid  of  the  gifts  which  Kant  and  Spencer  both 
credited  them  with.  A  formal  ethics  therefore  must  fall 
with  a  transcendental  outlook.  It'  fact,  it  has  never 
succeeded  even  in  the  minds  of  its  own  sponsors,  since 
sooner  or  later  the  question  of  content  at  least  had  to  be 
answered.  Precisely  for  this  reason  ethics  is  sure  to^"\ 
have  a  body  of  norms  which  aim  at  a  definite  reality,  at  a  ( 
set  of  circumstances  or  deeds  or  policies  whose  portrayal  I 
is  the  work  of  history  and  social  science.  Ethics  must  1 
be  empirical,  not  metaphysical.  Whether  we  think  of 
individualistic  hedonism  or  of  a  social  utilitarianism,  or 
of  any  of  the  eudaemonistic  systems  so  far  evolved,  in 
every  case  we  must  accept  the  experiential  basis  of  our 
norms.  The  decisive  feature  of  most  ethical  theories  has 
been,  on  the  one  hand,  its  empirical  tone,  and  on  the  other 
the  stress  of  a  purpose,  of  a  goal  of  facts.  The  conse- 
quences cannot  be  ignored !  The  motive  will  impress 
us  on  occasions ;  but  in  the  long  run  everything  depends 
on  the  content  which  our  behavior  or  our  moral  precepts 
give  to  life  itself. 


256  A  CRITIQUE  OF  ECONOMICS 

But  where  is  this  contents  to  come  from?  What  decides 
whether  an  idea  or  an  action  is  good  or  bad?  Whence  the 
Ultimate  Good  that  is  the  keystone  of  the  arch  of  every 
ethical  theory? 

In  putting  this  question  we  are  for  the  first  time  forced 
to  admit  that  facts  as  such  cannot  yield  a  moral  norm. 
There  is  no  possible  way  of  deriving  an  Ought  from  an  Is. 
Whatever  the  data  we  work  with  in  an  ethical  treatise,  its 
highest  norms  will  not  be  produced  from  these  data  in 
the  manner  of  converting  raw-materials  into  finished  arti- 
cles of  economic  value.  The  world  of  facts  is  not  that 
of  moral  judgments.  Or  to  state  the  situation  more  suc- 
cinctly: A  real  chasm  yawns,  separating  descriptive  and 
normative  analyses.  Not  that  there  are  two  groups  of 
sciences,  one  descriptive  of  physical  or  social  facts,  and 
a  second  embracing  rhetoric,  logic,  esthetics,  and  ethics. 
No,  this  time-honored  classification  is  not  a  necessary 
corollary  of  our  main  thesis.  But  it  will  prove  serviceable 
for  the  most  part  to  put  ethics  in  a  class  by  itself,  to 
realize  that  we  have  only  two  kinds  of  judgments,  viz., 
judgment  of  facts  and  judgments  of  conduct.  Many 
values  there  are,  but  we  have  only  one  ethical  value.  And 
that  deals  with  conduct  of  man  toward  man  or  toward 
other  animate  beings,  or  toward  a  sublimated  Self  which 
is  central  in  religion. 

^In  short,  we  have  to  do  with  two  entirely  different 
viewpoints.  On  the  one  side  is  science  which  treats  of 
events  and  their  regularities;  on  the  other  ethics  which 
considers  man  as  a  mlling  being.  There  the  Is,  and  here 
the  Ought.  There  a  study  of  responses  obeying  fixed 
laws  of  nature,  according  to  a  mechanistic  principle  which 
u  science  makes  a  postulate.    Here  a  study  of  responsibilities 


THE  METHODOLOGY  OF  ECONOMICS     257 

which  rest  on  reason  and  power  of  self-direction.  The 
scientist  sees  the  world  as  a  network  of  relations  between 
objects  and  their  changes.  Constancy  amidst  change  is 
the  spectacle  brought  before  us  !  But  from  a  moral  stand- 
point this  constancy  is  but  the  proof  of  an  absolute  will, 
of  a  plan  consciously  made  and  carried  into  execution  sub- 
ject to  the  approval  or  disapproval  of  other  responsible 
creatures. 

In  other  words,  to  ask  for  the  source  of  the  Ought  is 
to  refer  thereby  to  a  master  of  events,  to  a  captain  of  his 
fate,  nay  to  a  sovereign  who  rules  supreme.  Every  Ought 
points  to  a  master,  as  well  as  to  a  master  key  for  creed 
or  conduct.  It  rests  with  us,  in  an  historical  sense, 
whether  our  sovereign  is  to  be  human  or  divine,  but  there 
is  no  room  for  doubt  as  to  the  logical  implication  of  an 
Absolute. 

Until  modern  times,  and  especially  during  the  Christian 
era,  the  supreme  good  was  invariably  embodied  in,  and 
attributed  to,  God.  The  source  of  moral  standards  was 
thought  to  be  theistic,  and  the  hierarchy  accorded  pre- 
eminence because  of  its  superior  understanding  of  this 
fact.  The  Church  and  the  priest  ruled  undisputed.  Re- 
velation figured  as  the  means  of  enlightenment  on  ethical 
problems.  The  Gospel  represented  these  revelations,  and 
conscience  the  inner  voice  by  which  the  precepts  of  the 
divine  will  made  themselves  known  to  men.  Ethics  con- 
sequently was  an  offshoot  of  theology.  Creeds  became  all- 
important.  Tests  of  the  Ultimate  Good  were,  at  bottom, 
subjective  because  covered  by  adherence  to  dogma;  and 
absolutism  remained  the  faith  of  moralists  for  centuries. 

It  is  however  possible,  as  later  days  have  shown,  to 
substitute  a  human  for  a  divine  will;  to  find  a  sovereign 


258  A  CRITIQUE  OF  ECONOMICS 

in  men  among  men;  and  to  confess  by  the  same  token 
the  relativity  of  moral  norms,  no  matter  how  profoundly 
we  are  swayed  by  them.  Thus,  if  to-day  we  ask  what  the 
origin  of  the  highest  Good  must  be,  we  shall  do  best  to 
proceed  quite  empirically,  studying  the  forces  of  minority 
or  majority  opinion.  There  is  no  way  of  finding  out  what 
is  virtue  in  the  abstract  or  in  the  concrete  except  by  our 
consulting  the  views  of  the  whole  of  society  or  of  portions 
which  decide  for  the  remainder.  If  a  minority  sets  up 
norms,  it  may  be  with  the  tacit  assent  of  larger  numbers ; 
or  we  may  find  the  majority  dictate  to  the  smaller  group. 
It  will  depend  upon  the  kind  of  norms  we  are  thinking 
of  whether  they  are  ascribed  to  the  will  of  the  masses  or 
of  the  classes.  Generally  speaking,  though,  the  leader- 
ship of  the  few  must  be  acknowledged,  and  in  all  cases  the 
enforcement  of  what  is  declared  right  waits  upon  Might. 
That  is  to  say,  while  from  the  standpoint  of  the  (self -pro- 
nounced) righteous  people  certain  acts  may  reflect  noth- 
ing but  Might,  things  cannot  be  proven  right  or  good 
otherwise  than  by  a  dominance  of  opinion,  by  the  physical 
I  or  psychic  control  of  either  a  numerical  minority  or  ma- 
igority.  True  however  that  so  far  in  the  human  history 
the  Ultimate  Good  has  never  aimed  at  anything  less  than 
the  preservation  of  life.  Acts  of  individuals  and  policies 
of  groups  that  have  been  destructive  of  the  whole  human 
race  have  never  yet  passed  as  models  of  virtue.  The 
foremost  concern  has  always  been  the  protection  of  life 
either  on  behalf  of  one  person  or  of  a  larger  group  such 
as  a  modern  nation,  or  of  a  still  larger  racial  unit. 
That  has  been  one  outstanding  element  in  all  ethical 
systems.  Life  on  the  whole  has  been  deemed  worth  while 
as  a  minimum  to  safeguard.     Where  one  individual  or 


THE  METHODOLOGY  OF  ECONOMICS     259 

group  has  been  enjoined  to  sacrifice  its  life,  other  lives 
have  been  understood  to  be  gained  in  consequence. 
Whatever  the  disagreement  on  the  right  contents  of  life — ^^ 
and  here  the  norms  have  gone  far  apart,  as  might  be 
expected  in  view  of  the  differences  among  men — the  good- 
ness of  life  itself  has  rarely  been  impugned.  / 

So  far  as  economists  are  interested  in  ethics,  then,  their 
position  will  be  approximately  this.  They  will  make  facts 
a  subject  for  ethical  discussions,  hut  not  a  source  of 
ethical  criteria.  This  latter  is  exclusively  the  huTrmn  wUl 
in  its  various  manifestations  and  modes  of  self-assertion. 
Once  men  have  decided  upon  the  nature  of  the  Ultimate 
Good,  they  themselves  may  be  adjudged  virtuous  or  vi- 
cious, and  their  thoughts  or  actions  saintly  or  sinful.  First 
the  Good,  then  the  Good  Man!  First  the  moral  norm 
independent  of  facts,  then  the  facts  morally  appraised  in 
the  light  of  our  norms.  Social  data  as  such  are  a-moral. 
The  principles  of  economic  prosperity  correspondingly 
lack  a  moral  value.  But  if  moral  standards  chosen  by 
sovereigns  of  physical  or  psychic  force,  through  a  ma- 
jority or  minority,  pronounce  the  conditions  leading  to 
economic  prosperity  moral,  then — and  then  only! — may 
the  economist  offer  advice  of  an  ethical  import  to  whoso-  / 
ever  cares  to  use  it.  Economics  in  this  sense  waits  on 
ethics,  and  not  the  other  way  round.  "" 

"Applied  Economics." — Furthermore,  it  is  at  all  times 
perfectly  correct  to  apply  economic  principles  irrespective 
of  ethical  standards.  As  long  as  we  do  not  confuse  such 
practical  applications  with  ethics  itself  no  theoretical  diffi- 
culty arises  except  one.  And  that  one  is  methodological 
in  character  rather  than  practical.  Namely:  In  ad- 
vocating public  policies  or  private  conduct,  which  shall 


260  A  CRITIQUE  OF  ECONOMICS 

"apply"  economic  laws  exactly  as  the  natural  scientist 
exploits  his  knowledge  of  the  laws  of  nature,  we  are  assum- 
ing that  our  socio-economic  data  are  constants.  At  any 
rate,  often  this  assumption  is  made.  But  to  be  consistent 
we  should  have  to  grant  the  change  effected  in  our  eco- 
nomic processes  by  this  very  act  of  application.  The 
statesman  cannot  use  the  data  of  economics  as  the  manu- 
facturer may  use  those  of  a  chemist.  A  difference  exists 
which  has  already  been  explained  under  Law  and  Correla- 
tion, and  elsewhere.  A  dialectic  is  continually  going  on 
between  mind  and  matter,  ideas  and  actions,  creeds  and 
conditions.  It  modifies  not  only  the  external  appear- 
ances of  economic  life,  but  also  the  subject  matter  which 
we  build  into  statistical  frequencies,  correlations,  and 
qualitatively  founded  subsumptions.  One  need  not  preach 
freedom  of  the  will  in  order  to  distinguish  between  the 
applications  of  natural  and  of  social  science.  It  is  neces- 
sary only  to  remember  the  variability  of  organic  events, 
and  particularly  of  human  stimuli  and  responses.  The 
purely  matter  of  fact  view  taken  nowadays  of  the  human 
will  suffices  to  explain  the  conditional  nature  of  "applied 
economics."  We  apply  our  knowledge,  but  thereby  pre- 
pare the  way  for  further  applications  of  a  different  sort. 
Every  action  has  a  reaction  that  necessitates  a  new  ap- 
plication. In  this  sense  the  Hegelian  analysis  is  beyond 
reproach.  In  this  sense  all  of  us  apply  economics  con- 
tinually, the  policies  of  parties  and  government  being 
merely  a  special  case  which  has  excited  our  curiosity  be- 
cause of  the  large  scale  of  operations  involved.  Yet  ap- 
VT)lied  economics  must  always  be  a  variable  among  variables. 
Statics — Dynamics. — What  remains  to  be  said  further 
than  this  on  economic  methodology,  is  best  introduced  by 


THE  METHODOLOGY  OF  ECONOMICS     261 

a  brief  consideration  of  the  terms  static  and  dynamic, 
especially  since  questions  as  to  the  scientific  character  and 
the  scope  of  economics  were  almost  from  the  start  bound 
up  with  it.^ 

yV      What  the  eighteenth  century  contributed  to  the  evolu-    y^ 
tion  of  this  contrast  was,  of  course,  the  conception  of  I 
statics  and  dynamics  in  the  world  of  mechanics.  The  facts  \ 
of  matter  and  motion  were  treated  both  as  an  equilibrium   \ 
and  as  a  differential  giving  motion  to  parts.     The  New-    I 
tonian  system  had  revealed  with  great  clearness  the  opera-    \ 
tion  of  opposing  tendencies,  and  it  cannot  surprise  us  if     \ 
students  of  the  social  order  took  a  hint  from  this  ruling     / 
principle,  believing  that  what  was  true  of  physics  would 
necessarily  apply  also  to  psychics.     The  identity  of  laws 
of  nature  and  laws  of  mind  had  long  been  preached,  not 
only  by  Greek  philosophers,  but  also  by  psychologists 
from  Thomas  Hobbes  on.    English  empiricism  was  a  con- 
tinuous apology  for  a  mechanistic  conception  of  human 
nature,  the  associationists  being  convinced  of  nothing  so 
much  as  of  the  rigidity  of  the  laws  which  determined  the 
course  of  human  learning  or  the  succession  of  states  of 
consciousness.     Thus,  without  any  express  statement  on 
the  subject,  most  of  the  empiricists  in  England  and  in 
France  took  the  dependence  of  mental  upon  material  laws 
for  granted.    Monism  was  the  dominant  faith  of  the  time, 
while  dualism  was  in  vogue  only  among  the  Rationalists 
who  looked  to  Descartes  and  Leibniz  for  guidance. 

yV      Toward  the  end  of  the  century  J.  Bentham,  the  chief  ' 

protagonist   of   Utilitarianism   on  British   soil,   declared 

his  Table  of  the  Springs  of  Action  ^  to  be  a  system  of 

»  For  a  history  of  the  philosophical  aspects  see,  e.g.,  Boucke,  E.  A, 
Goethe's  "Weltanschauung,"  1907. 
•  In  his  "Explanations." 


262  A  CRITIQUE  OF  ECONOMICS 

"psychological  dynamics."  At  the  beginning  of  the  next 
century  Herbart  in  Germany  launched  his  theory  of  psy- 
chic forces  which,  while  designed  to  overthrow  the  older 
faculty  psychology,  rested  none  the  less  on  a  half  mech- 
anistic view  of  ideas.  "The  statics  and  mechanics  of 
mind,"  he  wrote  in  1816,  "deal  with  the  calculation  of 
an  equilibrium  and  also  of  movements  of  our  concepts." 
"Concepts,"  according  to  him,  "become  forces  in  that 
they  counteract  one  another  exactly  like  physical  forces ; 
and  this  happens  whenever  opposite  ideas  rise  to  conscious- 
ness." ^^  Newtonian  terms  were  thus  transferred  to  the 
field  of  human  events  because  it  was  felt  that  the  divine 
order  could  not  have  been  restricted  to  the  planetary  / 
movements,  or  because  there  existed  a  strong  belief  that 
fundamentally  human  nature  was  constant.  Given  this 
fixity  of  human  traits,  and  assuming  as  real  the  principle 
of  Design  or  of  Providence,  it  was  not  difficult  to  pic- 
ture the  world  as  the  best  possible,  the  prevalence  of  peace 
and  order  being  a  normal  condition.  Reason  and  justice, 
natural  law  and  conscience,  liberty  and  a  Beneficent 
Deity — these  were  household  words  to  the  minds  of  the 
Enlightenment,  articles  of  faith  that  most  men  would 
swear  to  as  a  matter  of  course.  A  static  philosophy  gath- 
ered strength  in  these  stoic  and  naturalistic  interpreta- 
tions which  agreed  admirably  with  the  settled  conditions 
of  the  times. 

The  Industrial  Revolution  in  England,  however,  and  // 
the  tremendous  upheaval  in  France,  tended  to  give  an  im- 
petus to  another  viewpoint  which  also  had  found  friends 

^*>  Herbart,  J.  F.,  "Lehrbuch  zur  Psychologic,"  1816  (Saemmtliche 
Werke,  edit,  of  Hartenstein,  G.,  vol.  5,  pp.  15-6,  327-480;  vol.  6, 
pp.  31-48). 


THE  METHODOLOGY  OF  ECONOMICS     263 

here  and  there,  and  whose  ultimate  fruits  were  the  doc- 
trines of  evolution  and  of  Historism  in  many  forms.  His- 
toriography had  made  great  strides  during  the  latter  half 
of  the  eighteenth  century.  The  interest  in  bygone  ages 
which,  though  never  dead,  had  flagged  visibly  before  the 
Reformation,  was  powerfully  stimulated  by  the  practical 
political  needs  of  that  period.  At  the  beginning  of  the 
nineteenth  century  the  historical  approach  to  human 
events  had  already  been  accepted  as  of  primary  impor- 
tance. Philosophies  of  history  and  theories  of  progress 
were  popular  themes  for  scientists  and  poets.  The  meta- 
physicians in  Germany  had  generalized  upon  the  law 
of  change  and  made  out  of  it  a  logic  underlying  all 
processes  of  thought.  Thus,  from  various  quarters, 
the  materials  had  been  garnered  that  could  serve 
social  investigators  well,  if  they  had  the  necessary 
insight. 

Now,  Comte  was  one  of  those  who  believed  in  the  regu-  ^' 
larity  of  human  happenings,  but  was  impressed  also 
with  the  changes  in  time  that  historians  made  their  ex- 
clusive subject.  Comte,  therefore,  in  addition  to  found- 
ing a  science  of  "social  physics"  which  should  do  for 
mental  phenomena  what  physics  had  done  for  the  world 
of  matter  and  force,  suggested  that  an  analysis  of  the 
present  be  combined  with  a  study  of  periods.  Things  as 
they  are  he  wished  to  have  studied  as  social  statics,  and 
successions  of  events,  (analyzed  with  regard  to  their  dif- 
ferences) as  social  dynamics.  Or  in  his  own  words,  "so- 
cial dynamics  studies  the  laws  of  succession,  while  social 
statics  inquires  into  those  of  coexistence;  so  that  the  use 
of  the  first  is  to  furnish  the  true  theory  of  progress  to 
political  practice,  while  the   second  performs   the   same 


264.  A  CRITIQUE:  OF  ECONOMICS 

service  in  regard  to  order."  ^^  This  was  the  contrast  that 
Comte  deemed  essential  to  a  successful  diagnosis  of  hu- 
man affairs.  With  this  admonition  he  gave  to  the 
world  a  concept  that  economists  ere  long  adapted  to 
their  own  ends,  though  not  without  introducing  modi- 
fications which  Comte,  for  one,  could  not  have  sanctioned ; 
if  for  no  other  reason,  because  economics  to  him  was 
not  a  science. 
v\  J.  S.  Mill  must  doubtless  be  given  the  credit  for  mak-  '/ 
ing  a  larger  circle  of  economists  acquainted  with  the 
Comtean  idea.^^  However,  even  with  him  the  central 
idea  was  still  the  buttressing  of  the  deductive  method 
by  a  use  of  what  he  called  the  Historical  method.  If 
Comte  had  made  it  clear  that  all  things  may  be  pictured 
either  as  at  rest  or  as  in  motion,  and  if  to  the  science 
of  Order  he  had  annexed  the  science  of  Progress,  Mill 
as  his  ardent  admirer  not  only  accepted  this  contrast, 
but  furthermore  exploited  it  as  a  mode  of  reasoning  that 
should  rid  the  exclusively  deductive  approach  of  its  foibles. 
For  Mill  dynamics  meant  no  less  the  "necessity  of  con-  ^ 
necting  all  our  generalizations  from  history  with  the  laws 
of  human  nature"  ^^  than  the  measurement  of  changes  in 
invention,  personal  and  property  security,  free-trade,  and 
the  extension  of  cooperation — of  which  he  spoke  specifi- 

"  "Positive  Philosophy"  (abridged  translation  of  H.  Martineau, 
1855),  p.  464.  Similarly  Ward,  L.  F.,  "Pure  Sociology,"  1903,  p.  98. 
In  general  this  idea  is  accepted  by  Mill,  J.  S.,  "Logic  and  Principles 
of  Political  Economy";  by  Jennings,  R.,  "Natural  Elements  of  Polit- 
ical Economy,"  1855,  Preface;  by  Keynes,  J.  N.,  "Scope  and  Method 
of  Political  Economy,"  1890,  pp.  140-42;  by  Ward,  L.  F.,  in  his 
"Dynamic  Sociology."  For  a  modified  version  see  Spencer,  H.,  in 
his  "Reasons  for  Dissenting  from  Comte,"  March  12,  1864. 

"See  "Principles  of  Political  Economy,"  5.  edit.,  vol.  II,  Book  4, 
ch.  1,  §  1. 

"  "Logic,"  edit.  1871,  Book  6,  ch.  10,  §  3  and  §  6. 


THE  METHODOLOGY  OF  ECONOMICS     265 

cally.^^  Or  in  other  words,  Mill  was  the  first  to  detect 
in  the  distinction  between  statics  and  dynamics  a  meth- 
odological device  supplementary  to  the  rigidly  deduc- 
tive procedure  which  his  psychology  demanded.  It 
was  his  wish  chiefly  to  find  data  by  which  to  test  eco-  | 
nomic  theorems  based  on  the  conception  of  an  economic 
man. 
N^  Later  writers  continued  to  make  a  distinction  between  // 
statics  and  dynamics,  not  merely  because  they  had  an 
illustrious  example  in  Mill  himself,  but  because  the  ad- 
vent of  Marginism  meant  both  subjectivism  and  abstrac- 
tion. The  Utilitarian  standpoint  was,  after  all,  objective, 
and  hence  likely  to  remind  students  of  the  eternal  flux  of 
life.  In  seeking  to  explain  prices  through  costs  or  ex- 
penses, in  laying  some  emphasis  upon  physical  produc- 
tivity, as  well  as  upon  principles  of  private  and  public 
budgeting,  the  Utilitarians  were  certain  to  deal  largely 
with  facts  as  presented  to  their  senses.  It  was  pos- 
sible, as  the  records  show,  to  adopt  a  risky  simplification  of 
human  nature  and  of  social  processes,  while  nevertheless 
attentive  to  their  environment.  Marginists  on  the  other 
hand  turned  a  factual  into  a  conceptual  science  because 
psychic  interpretations  displaced  all  physical  standards, 
the  need  for  simplification  being  now  greater  than  ever. 
Statics  therefore  was  contrasted  with  dynamics,  and  not 
only  that:  The  abstraction  involved  in  this  differentia- 
tion was  often  forgotten,  so  that  statics  came  to  represent 
a  normal  state  of  aff'airs,  while  dynamics  formed  an  ex- 

"  "Principles  of  Political  Economy,"  5.  edit.,  Book  IV,  chs.  1-2. 
Two  kinds  of  dynamic  conditions  are  recognized  by  Pareto,  V., 
"Manuel  d'Economie  Politique"  (translated  by  Bonnet,  A.,  1909), 
p.  147  and  ch.  3.  See  also  Schumpeter's  well-known  views  in  his 
"Wesen  und  Hauptinhalt,"  1908,  and  "Theorie  der  Wirtschaftlichen 
Entwicklung,"  1912. 


^ 


266  A  CRITIQUE  OF  ECONOMICS 

ceptional  or  at  any  rate  incidental  phase  of  the  economic 
process. 

On  the  one  hand,  then,  economic  data  were  spoken  of 
commonly  as  forces  which  operated  in  certain  describable 
ways  and  were  either  at  rest  or  in  motion.  A  static  con- 
dition prevailed  for  the  most  part,  according  to  this 
viewpoint.  "It  is  even  true,^'  we  read  in  one  treatise^ 
"that,  as  long  as  competition  is  free  the  most  active  so- 
cieties conform  most  closely  to  their  static  models."  ^^ 

"^  On  the  other  hand,  statics  meant  a  methodological  de- 
vice which  reduced  the  bewildering  number  of  actual  rela- 
tions to  a  comparatively  few,  thus  enabling  the  economist 
to  lay  down  precise  rules  for  obtaining  the  best  results. 
Instead  of  an  indeterminate  number  of  elements  we  get 
a  determinate  number.^^  Instead  of  wondering  about 
the  mysteries  of  causation  we  are  frankly  advised  to  rest 
content  with  a  functional,  virtually  mathematical  correla- 
tion of  events.  Instead  of  statistics,  an  experimental  norm 
is  introduced,  it  being  held  that  varying  the  factors  under 
investigation  in  the  manner  of  natural  science  will  yield 
exact  knowledge  of  price  and  income.  "Given  an  equi- 
librium for  any  one  economic  status,  and  a  particular  fact 
of  interference  with  it,  how  will  price  and  income  be 
changed?"  ^"^  This  was  stated  to  be  the  static  problem 
par  excellence. 

^  Were  then  no  changes  to  be  reckoned  with  at  aU  ?  Must 
statics  mean  a  stationary  condition,  something  like  a  body 
at  rest  all  of  whose  parts  are  likewise  motionless?  The 
answer  to  this  question  was  in  the  negative.     An  equi- 

«  Clark,  J.  B.,  "Essentials  of  Economic  Theory,"  1907,  p.  195. 
"Schumpeter,  J.,  "Wesen  und  Hauptinhalt,"  p.  28. 
"Ibidem,  pp.  460,  and  446-51. 


THE  METHODOLOGY  OF  ECONOMICS     267 

librium,  we  read,  is  a  "state  which  would  be  prolonged  in- 
definitely in  the  absence  of  changes  for  conditions  sur- 
rounding it" ;  ^^  but  this  did  not  exclude  changes  of  a 
quantitative  kind  which  would  modify  magnitudes,  without 
affecting  the  number  of  elements  brought  into  correlation.  *^ 
At  least  this  was  a  distinction  frequently  made,  and  to 
which  those  assented  who  gave  the  matter  some  thought. 
The  difference  between  qualitative  and  quantitative 
changes  was  believed  to  be  generic.  For  one  writer  the 
dynamic  features  were  a  growth  of  population,  or  of  capi- 
tal, or  changes  in  methods  of  production,  or  of  organiza- 
tion, or  changes  in  consumers'  wants. ^^  Another  writer 
reduced  all  dynamic  agents  to  four,  viz.,  'variations  of  the 
extension  of  the  zone  of  economic  activity,  variation  in  the 
relative  amounts  demanded  by  productive  enterprises,  for 
general  and  special  outlays,  variations  in  structure  of 
population,  and  variations  in  those  descending  curves 
which  represent  gradations  of  costs  of  different  incre- 
ments of  products."  ^^  A  third  author  stressed  changes 
in  humanity  (population,  its  wants  and  capacities),  and 
in  environment  (land,  capital-goods,  and  the  loan- 
fund)  ;  ^^  while  a  fourth  mentioned  as  most  important 
changes  those  in  population,  culture,  natural  resources, 
and  the  technique  of  production.^^ 

For  the  most  part  the  static  condition  was  associated  // 
with  an  exchange-system  whose  study  made  of  economics 
a  science  of  catallactics.     Changes  occurring  spontane- 

"Pareto,  V.,  "Manuel,"  ch.  3,  §22. 

»  Clark,  J.  B.,  "Essentials,"  pp.  203-06. 

*"  Pantaleoni,  M.,  in  Publications  of  Am.  Ec.  Assoc,  1910,  p.  112: 
"Phenomena  of  Dynamic  Economics." 

*  Davenport,  H.  J.,  "Economics  of  Enterprise,"  1913,  pp.  453-54. 

"  Fetter,  F.  A.,  "Economic  Principles,"  vol.  I,  pp.  400-01.     For  an 
interesting  variant  on  these  views  of  statics  see  Knight,  P.  A.,  "Risk,       w 
Uncertainty  and  Profit,"  1921,  Ch.  5. 


268  A  CRITIQUE  OF  ECONOMICS 

ously  within  the  economic  regime  were  either  considered 
unimportant,  or  of  that  quantitative  type  that  affected 
in  no  wise  the  premises  of  the  reasoner.  For  one  group 
it  seemed  true  that  "the  actual  form  of  a  highly  dynamic 
society  hovers  relatively  near  to  its  static  model,  though 
it  never  conforms  to  it" ;  ^^  for  another  dynamics  repre- 
sented a  transition  stage  that  was  to  statics  what  the 
exception  is  to  the  rule. 

Yet  it  may  be  regarded  significant  that  the  same  writer 
who  first  said:  "An  equilibrium  is  a  state  in  which,  as 
long  as  no  disturbing  factor  from  outside  appears,  no 
leaning  toward  a  change  exists,'*  ^*  added  a  few  years 
later:  "Economic  systems  would  change  even  if  nothing 
whatever  underwent  changes  outside  of  them."  ^^  The 
need  of  a  dynamic  standpoint,  in  other  words,  was  clearly 
recognized.  It  is  admitted  that,  whatever  the  service  of 
a  static  abstraction,  "as  a  psychology  of  economic  proc- 
esses [it]  is  a  failure  in  an  important  case,  and  can  never 
be  valid."  ^^  Not  only  were  non-economic  events  tabu- 
lated as  an  integral  part  of  dynamics  continually  at  work, 
but  what  is  more,  the  resort  to  dynamics  for  completing 
the  economic  picture  gained  popularity.  The  short-  and 
long-time  views  of  human  interrelations  were  focused  upon 
central  themes  such  as  hedonism  versus  energism,^^  or 
price  versus  valuation.  Different  classes  of  men  seemed 
at  the  head  of  economic  activities,  dependent  upon  view- 
point; or  the  same  men  seemed  to  be  actuated  by  differ- 
ent  motives   according   to   whether   statics   or   dynamics 

» Clark,  J.  B.,  "Essentials,"  p.  195. 
**  Schumpeter,  J.,  "Wesen  und  Hauptinhalt,"  p.  36. 
"  Schumpeter,  J.,  "Theorie  der  Wirtschaftlichen  Entwicklung,*'  pp. 
469,  490. 

"Schumpeter,  "Wesen  und  Hauptinhalt,"  p.  512,  Note. 
"Ibidem,  p.  128. 


THE  METHODOLOGY  OF  ECONOMICS     269 

became  the  method  of  the  economist.  "The  contrast,'^  we 
are  informed  by  an  American  observer,  "may  be  put  in 
general  as  the  contrast  between  the  theory  of  value,  and  the 
theory  of  price,  statics  being  price-theory,  and  dynamics 
being  value-theory."  ^^ 

But  even  more  room  was  made  for  dynamics  by  others  v 
who  saw  the  danger  of  an  excessive  simplification  of  prob- 
lems. If  for  one  writer  "there  are  as  many  'static  states* 
as  there  are  economic  problems  worth  studying,"  ^^  for  a 
second  "any  realistic  study  of  distribution  must  be  dy- 
namic— ,"  ^^  while  to  a  third  a  purely  dynamic  economics 
is  the  only  satisfactory  one.  Thus  as  early  as  1892  the 
preeminence  of  dynamic  agencies  is  stated  as  follows, 
again  by  an  American:  "Changes  in  race  psychology 
[i.e.,  "subjective  qualities,  desires,  and  feelings  created 
in  men  by  society"]  give  to  men  a  new  economic  environ- 
ment. This  new  environment  modifies  the  standard  of  life 
through  changes  in  consumption,  and  then  the  new  stand- 
ard acts  upon  the  race  psychology  and  creates  new  mo- 
tives in  production.  This  complete  economy  I  would  call 
a  dynamic  economy  because  it  keeps  up  a  series  of  pro- 
gressive movements  in  society  through  the  reactions  be- 
tween the  subjective  and  objective  worlds."  ^^  Historism 
and  the  economic  interpretation  of  history  thus  helped  to 
clarify  men's  notion  of  the  dialectics  of  social  develop- 
ment, the  net  outcome  being  a  thoroughly  dynamic  ver- 
sion of  economic  types  of  events.  // 

We  are  bound  to  ask :    Is  the  distinction  between  statics 

"Anderson,  B.  M.,  "Value  of  Money,"  p.  559.     See  also  ch.  25. 

«» Knight,  F.  H.,  in  /.  of  Pol  Econ.,  1921,  p.  305. 

"'Ely,  R.  T.,  "Property  and  Contract,"  1914,  vol.  I,  p.  33. 

^  Patten,  S.  N.,  "Theory  of  Dynamic  Economics,"  p.  38.  See  also 
the  same  writer's  remarks  in  Publications  of  Am.  Ec.  Assoc,  vol.  11, 
1910,  p.  128. 


270  A  CRITIQUE  OF  ECONOMICS 

and  dynamics  to  be  upheld  for  future  labors?  Does 
statics  rank  properly  as  a  "normal"  state  of  affairs 
whose  analysis  constitutes  the  bulk  of  economic  re- 
searches? Or  may  we  turn  our  back  on  them,  declaring 
economics  to  be  a  dynamic  study  solely,  i.e.,  a  study  which 
is  entitled  to  no  more  abstractions  than  natural  scientists 
make  use  of  ? 
y  Now  the  answer,  it  should  not  be  difficult  to  guess,  is 
the  elimination  of  statics  by  studying  things  exactly  as 
they  are,  irrespective  of  their  intricacies.  The  sociolo- 
gists have  been  a  good  example  for  the  economist  in 
this  respect  as  in  some  others.  They  have  not  expatiated 
long  on  the  pros  and  cons  of  statics,  but  instead  ad- 
justed their  plans  to  the  material  directly  before  them. 
And  this  must  be  considered  the  only  profitable  method. 
For  not  only  do  socio-economic  relations  and  conditions 
change  continually — a  fact  most  economists  conceded  in 
the  abstract — but  in  addition  these  actual  events  differ 
qualitatively,  i.e.,  incomparably,  from  those  known  to 
statics.  The  chief  reason  why  economists  cannot  imitate 
physicists  without  invalidating  their  conclusions  is  their 
inability  to  estimate  dynamic  facts  quantitatively  after 
they  have  worked  with  statics.  To  claim:  "The  oscilla- 
tions [of  the  price  pendulum]  are  due  to  dynamic  forces ; 
and  these  can  be  measured,  if  we  first  know  the  nature 
of  the  static  forces  and  the  position  to  which,  if  they  were 
acting  alone,  they  would  bring  the  pendulum"  ^^ — to  say 
this  is  to  promise  the  impossible.  For,  as  we  have  seen,  / 
a  radical  difference  exists  between  the  units  of  natural 
sciences  and  those  of  social  sciences.  The  first  are  regu- 
larly proven  to  be  irreducible;  they  are  definite  and 
«» Clark,  J.  B.,  "Distribution  of  Wealth,"  1899. 


THE  METHODOLOGY  OF  ECONOMICS     271 

built  into  events  that  may  be  measured  by  rigid  stand- 
ards whose  operation  we  may  follow  with  our  senses, 
with  or  without  the  aid  of  instruments.  The  second  class 
of  units  however  are  as  indefinite  in  many  cases  as  they 
are  numerous  and  liable  to  change  both  in  an  objective 
and  in  a  subjective  sense.  The  economist,  unlike  the 
natural  scientist,  does  not  deal  with  a  demonstrably 
homogeneous  class  of  things,  except  in  so  far  as  for  any 
one  situation  he  assumes  a  definite  contents  to  make  his 
measurements.  Economic  statics,  consequently,  cannot 
be  to  economic  dynamics  what  physics  can  be  to,  say, 
meteorology ;  for  the  latter  two  deal  with  the  same  num- 
ber of  elements  while  the  former  two  involve  different 
numbers  and  kinds  of  elements.  The  meteorologist  might 
predict  the  weather  accurately  at  all  times  if  he  could 
measure  all  the  variations  in  the  magnitude  of  the  few 
elements  he  is  concerned  with,  these  elements  themselves 
being  studied  also  by  physicists.  But  if  we  wish  to  cor- 
relate social  events  as  they  occur  we  cannot  count  on 
the  restriction  of  the  number  of  factors  that  the  advocates 
of  statics  demand.  It  is  not  merely  a  question  of  facing 
a  vast  range  of  fluctuations  of  elements  defined  for  a 
correlation,  but  also  of  bringing  facts  into  a  formula 
in  a  dynamic  view  that  the  statical  takes  no  cognizance  of. 
Thus,  while  it  is  true  that  in  part  dynamics  and  statics^ 
so-called  cover  the  same  data  in  economics,  and  while 
again  we  must  admit  that  causality  is  as  real  for  human 
events  as  for  the  physical — supposing  we  accept  the 
terms  of  causation  at  all — an  "ideaP^  or  static  economics 
can  not  be  made  an  index  of  actual  dynamic  condi- 
tions. Abstractions  are  part  of  scientific  work,  but  they 
should  not  give  us  contradictory  views  of  a  subject.    To 


272  A  CRITIQUE  OF  ECONOMICS 

present  the  same  data  from  several  angles,  at  short  and 
s  at  long  range  with  differences  of  emphasis  or  aspect,  is 
one  thing ;  but  to  alter  the  facts  for  the  sake  of  a  specious 
argument  is  still  another  thing.  The  first  may  be  most 
instructive  in  its  way;  the  second  can  only  lead  to  ab- 
surdities. 

The  Methods  of  Economics.— Lastly,  the  methods  of 
economics  must  be  the  same  irrespective  of  the  distance 
from  which  we  view  our  materials.  Nor  do  they  call  for 
lengthy  elaboration  at  this  point,  since  their  several  uses 
have  already  been  considered  in  previous  chapters.  From 
what  has  been  said  on  law  and  causation  it  follows  that 
economists  will  resort  almost  entirely  to  statistics  and 
reflection. 

~^-^^  Experimentation  is  out  of  the  question  for  the  social 
sciences  because  we  lack  Hie  means  oF isolation  and.  repro- 
duction, and  cannot  exactly  measure  the  quantitative 
changes  accompanying  a  particular  variable.  J.  S.  Mill 
himself  was  emphatic  in  making  this  clear,  contrasting 
chemical  with  mechanical  causation.  As  he  saw  it:  "In 
social  phenomena  the  composition  of  causes  is  the  uni- 
versal law."  "The  effect  whch  is  produced  in  social  phe- 
nomena by  any  complex  set  of  circumstances  amounts  pre- 
cisely to  the  sum  of  the  effects  of  the  circumstances  taken 
singly,"  and  "social  science  therefore  is  a  decfuctive  sci- 
ence  ."^^     Now,  this  would  hardly  be  an  objection 

to  the  experimental  method  in  economics  to-day,  since 
we  cannot  hold  to  the  mechanical  conception  of  human 
happenings  entertained  by  Mill.  So  far  from  conscious- 
ness obeying  the  mechanical  laws  of  association,  as  taught 
by  the  eighteenth  century  psychologists,  they  appear  to 
""Logic,"  Book  III,  ch.  10,  §  8  and  Book  VI,  ch,  7. 


THE  METHODOLOGY  OF  ECONOMICS     273 

us  as  synthetic  products  admitting  of  no  summation.  We 
should  call  the  social  laws  chemical,  and  not  physical,  and 
thus  disagree  sharply  with  the  sensationalists.  But 
because  of  the  indefiniteness  of  our  units,  because  of  their 
complex  make-up  and  their  instability,  we  are  as  keenly 
aware  of  the  unfitness  of  experimentation  for  social  sci- 
ence as  Mill.  We  not  only  grant  the  plurality  of  causes, 
but  also  that  of  effects.  We  not  only  picture  physiologi- 
cal processes  in  terms  of  chemistry,  but  likewise  find  it 
exemplified  in  streams  of  consciousness,  in  inter-individual 
activities.  Thus  we  reject  a  proposal  for  laboratory 
methods  in  order  to  secure  generalizations.  It  is  obvious 
to  us  on  first  thought  that  events  cannot  be  added  and 
subtracted  so  as  to  leave  a  basis  for  comparisons.  What 
attempts  at  experimentation  may  be  urged  by  a  would-be 
reformer,  or  by  theorists  offering  a  rule  for  action,  will 
almost  surely  prove  impracticable.  We  want  none 
of  these  try-outs,  and  dread  the  useless  waste  and  incon- 
venience to  be  occasioned  by  such  a  measure.  Things  are 
never  exactly  the  same,  we  believe,  because  our  whole  life 
has  been  a  chain  of  unique  events  in  one  sense.  Thus  the 
difference  between  the  units  of  physical  science  and  those 
of,  e.g.,  economics  is  indirectly  conceded.  We  may  be 
eager  to  consult  the  facts  and  to  verify  our  conclusions 
up  to  a  maximum  possible  degree,  but  such  inductions  can- 
not obey  the  time-hallowed  canons  of  agreement  and  dis- 
agreement. 

In  other  words,  we  must  proceed  statistically  if  we  are 
to  undertake  measurements  at  all.  As  has  been  shown, 
our  units  and  their  correlations  may  be  handled  in  no  other 
way.  That  regularities  exist  was  evident  to  men  a  century 
ago,  and  that  some  of  them  attain  nearly  to  the  precision 


274  A  CRITIQUE  OF  ECONOMICS 

/  of  physical  laws  the  Belgian  Quetelet  was  among  the  first 
to  demonstrate.  All  the  characteristics  that  distinguish 
vital  phenomena  from  all  others  also  help  us  to  decide 
when  to  apply  statistical  measurements  and  when  the  ex- 
perimental. Thus  we  may  choose  for  correlation  per- 
ceptual objects,  or  larger  event-complexes  which  them- 
selves constitute  relations  between  things  or  persons. 
We  define  and  compare  our  units.  We  count  frequencies 
and  devise  averages  for  convenience,  ignoring  fluctuations 
whose  final  explanation  may  not  be  given  anyhow.  We 
take  care  to  make  our  classes  or  events  comparable  by 
all  the  tests  which  experience  has  gradually  taught  us  to 
apply.  We  adjust  our  time  and  space  units  to  the  nature 
of  our  subject-matter  and  to  the  variations  we  may  be 
measuring.  Our  series  may  have  to  be  subdivided,  and 
our  coefficients  of  correlation  be  corrected  in  view  of 
special  known  facts  functioning  as  conditioning  pheno- 
mena. There  are  many  precautions  to  be  taken  lest  our 
results  become  unreliable. 

'xy  Yet  if  compiled  with  care  statistics  may  be  used  both 
/  inductively  and  for  purposes  of  verifying  deductions 
N^irectly  from  our  knowledge  of  human  nature.  It  is  fair 
to  forecast  events  on  the  strength  of  measurements  re- 
garding individual,  or  bundles  of,  events.  Though  our 
data  will  never  be  known  as  completely  as  those  of  a 
natural  scientist,  yet  an  agreement  between  hypothesis 
and  our  actual  counts  is  a  most  favorable  omen  in  many 
cases.  We  may  assent  to  the  dictum  that  "it  is  impos- 
sible to  frame  any  general  theories  of  value,  interest, 
wages,  rent,  etc.,  by  purely  a  posteriori  method  of  reason- 
ing";^* but  this  will  not  blind  us  to  the  merits  of  statis- 
•*  Keynes,  J.  N.,  "Scope  and  Method  of  Political  Economy,"  p.  199. 


THE  METHODOLOGY  OF  ECONOMICS    275 

tics,  to  the  value  of  numbers,  of  frequency,  of  constants 
of  fluctuation,  of  multiple  correlations  as  a  basis  for 
short-time  inferences.  Results  hitherto  attained  have 
not  discouraged  the  investigator.  The  calculation  of 
probability  has  become  part  of  many  a  survey  of  facts 
economic  and  sociological.  If  statistics  do  not  rival 
experimental  methods  in  exactitude  and  magnificence  of 
verified  generalizations,  neither  has  its  method  as  yet 
been  so  highly  perfected ;  nor  have  we  had  time  to  evalu- 
ate changes  as  integral  portions  of  a  cycle  which — so  far 
as  we  know — may  repeat  itself  somewhat  in  the  fashion 
of  laws  of  nature. 

\J  Of  the  "Mathematical  Method." — However,  even  apart^ 
from  such  shortcomings  of  the  statistical  method  there  is 
no  denying  that  a  great  deal  of  the  social  scientist's  work 
will  always  be  done  by  reflection,  that  is  with  the  aid  of 
the  third  method  which  has  been  commonly  called  deduc-J 
tive,  and  for  which  mathematics  has  become  famous.  Not 
that  the  latter,  incidentally  speaking,  has  any  distinct 
methods  of  its  own,  or  brings  us  into  touch  with  new 
basic  principles.  No.  The  mathematician  reasons  like 
other  human  beings.  He  relies  upon  premises  and  intui- 
tion. He  hypothecates  with  the  aid  of  known  facts  and 
under  guidance  of  mental  association.  He  deals  with 
magnitudes  and  makes  measurements  by  dint  of  close  rea- 
soning. He  may  correlate  his  chosen  magnitudes  and  pro- 
claim eternal  verities.  He  may  devise  a  language  of  his 
own  and  standardize  his  notation  more  easily  perhaps  than 
others.     There  are  graphs  and  equations  for  him  to  de- 

j   velop   that   provide   the   ear-marks   of   a   "mathematical 
method."     But  what   really   sets   off  this   method   froraTJ 
others  is  not  the  dress  in  which  it  appears,  but  rather  its 


276  A  CRITIQUE  OF  ECONOMICS 

independence  of  the  facts  of  experience.  If  therefore  we 
allude  to  a  method  characteristic  of  mathematics  ^^  we 
cannot  mean  something  additional  to  the  three  standard 
methods  of  experimentation,  statistics,  and  reflection.  We 
can  only  stress  the  difference  between  a  science  drawing 
its  premises  from  a  factual  world  and  being  logically  con- 
strained to  verify  them  (or  else  having  its  conclusions 
•  questioned),  and  another  field  in  which  conclusions  relate 
to  assumptions  solely,  not  also  to  an  environment  of  com- 
mon sense.  Mathematics  may  be  called  a  unique  disci- 
pline— if  formal  logic  be  not  one  with  it — since  it  cares  so 
little  about  empirical  tests,  and  so  much  about  rigorous 
thinking.  The  remark  of  a  recent  writer  that  "the  per- 
fection of  the  modern  method  [of  geometry]  is  attained 
when  it  is  entirely  freed  from  dependence  upon  figures  or 
constructs  or  any  appeal  to  the  perceptual  character  of 
space.  When  geometry  is  thus  freed  from  this  appeal  to 
intuition  or  perception,  the  methods  of  proof  are  simply 
those  which  are  independent  of  the  nature  of  the  subject 
matter  of  the  science — that  is,  the  methods  of  logic 
which  are  valid  for  any  subject  matter"  ^^ — this  re- 
mark may  well  serve  to  differentiate  mathematics -.in  our 
mind  from  all  other  types  of  investigation.  So  far  as 
this  aloofness  from  content  sensually  derived  is  peculiar 
to  mathematics  it  practices  deduction  and  is  in  a  class  by 
itself. 
^'^  T^'  But  this  being  so,  we  must  grant  at  the  same  time  that 
^  \ economics  cannot  be  simply  deductive:  for  in  economics  we 

"  The  economic  mathematical  literature  of  ,  recent  years  is  re- 
viewed by  Edgeworth,  F.  Y.,  in  Ec.  J.,  1908,  vol.  17,  pp.  221-32,  524- 
31;  vol.  18,  pp.  392-403,  and  541-56.  On  use  of  graphs  see,  for  in- 
stance, Waffenschmidt,  W.  G.,  in  Archiv.  f.  Sozialw.  und  Pol.,  1914-15, 
pp.  438-81,   and   795-818. 

••Lewis,  C.  I.,  "Survey  of  Symbolic  Logic,"  1918,  pp.  341  and  372. 


THE  METHODOLOGY  OF  ECONOMICS     277 

treat  of  facts,  and  frequently  of  such  as  may  be  verified 
by  our  senses,  even  after  they  have  been  converted  into 
scientific  values.  If  then  we  use  the  phrase  "deductive 
method,"  we  must  mean  by  it  reflection  as  here  understood. 
We  must  distinguish  between  the  measurements  of  experi- 
mentation and  statistics,  and  their  absence  in  reflection. 
We  must  bear  in  mind  the  factual  content  of  economics 
as  against  the  conceptual  nature  of  mathematical  proofs. 
The  employment  of  symbols  and  equations  typical  of 
mathematics  will  not  make  economics  a  mathematical  sub- 
ject, nor  could  economists  on  the  other  hand,  who  reduce 
their  complex  units  and  relations  to  a  handful  of  magni- 
tudes for  purposes  of  coordination,  be  called  anything  but 
mathematicians.  For  surely,  the  mere  circumstance  that 
our  entities  are  taken  from  an  economic  world  does  not 
leave  them  economic  if  their  meanings  and  connections  are 
destroyed. 

But  it  is  none  the  less  right  to  accord  a  place  to  reflec- 
tion in  social  inquiries,  since  qualitative  correlations  are 
as  much  a  part  of  science  as  the  quantitative.  Whenever 
the  determination  of  exact  magnitudes  is  unimportant, 
whenever  our  regular  recurrences  relate  to  elements  as 
such,  simply  as  qualities  or  events,  whenever  types  of  rela- 
tions and  common  attributes  are  sought  that  bind  to- 
gether large  classes  of  seemingly  independent  relations, 
then  the  reflective  method  will  take  the  place  of  statistics. 
There  are  many  kinds  of  problems  that  no  other  method 
can  solve.  There  is  much  reason  in  general  for  the  senti- 
ment, voiced  by  a  sociologist,  that  "inspired  intelligence" 
must  always  score  heavily  in  the  fathoming  of  truth,  and 
that  "the  sooner  we  cease  circumscribing  and  testing  our- 
selves by  the  canons  of  physical  and  physiological  science, 


278  A  CRITIQUE  OF  ECONOMICS 

the  better."  ^^  At  any  rate,  in  addition  to  statistics  re- 
flection must  be  relied  upon  for  a  correct  evaluation  of 
phenomena ;  and  what  is  more,  the  time  will  probably  never 
come  when  quantitative  measurements  can  alone  fill  the 
needs  of  economics,  or  put  to  shame  the  results  of  quali- 
tative correlation. 
T^r"  Reflection  for  economists  will  remain  probably  a  mode 
I  of  approach  superior  to  statistics,  no  matter  how  much 
this  latter  accomplishes.  Qualitative  analysis  may  not 
be  as  intelligible  to  the  casual  reader  as  averages  or  a 
chart  of  coordinates  well  plotted,  but  as  a  subtler  presen- 
tation of  incommensurables,  as  a  unified  account  of  a  com- 
plex process  viewed  from  one  angle,  it  should  never  cease 
to  be  attractive.  If  a  rank  must  be  assigned  therefore 
,  to  our  principal  economic  methods,  it  surely  will  be  reflec- 
tion first,  and  statistics  second  as  a  tool  for  research. 
This  seems  just  to  both,  and  need  not  oust  the  statistician 
from  his  own  peculiar  sphere  of  usefulness. 

"Cooley,  Ck.  H.,  "Social  Process,"  1918,  pp.  397-400. 


CHAPTER    TEN 

LINES  OF  RECONSTRUCTION 

What  to  Discard. — In  what  follows  some  of  the  points 
will  be  seen  to  have  been  brought  up  before,  or  at  least 
hinted  at  in  connection  with  a  discussion  of  allied  topics. 
Others  will  here  be  added  for  the  first  time,  partly  because 
they  may  serve  to  indicate  what  changes  seem  most  in  ac- 
cord with  the  suggestions  of  a  host  of* writers  during  the 
last  generation,  and  partly  because  it  would  be  false 
modesty  to  subject  the  premises  and  principles  of  cur- 
rent economics  to  a  candid  criticism  without  taking  the 
last  step  in  which  corollaries,  theoretical  and  practical, 
are  clearly  stated.  There  is  no  harm  in  offering  advice 
provided  we  do  not  assume  a  dogmatic  tone,  or  reason  on 
the  assumption  that  it  rests  with  one  man  or  a  few  to 
point  the  way  to  salvation.  What  is  intended  here  is  not 
an  unwavering  declaration  of  independence  which  breaks 
nonchalantly  with  the  past,  with  its  achievements  and 
memories  of  great  men,  but  a  revaluation  of  means  and 
ends  in  harmony  with  current  opinion,  not  only  in  eco- 
nomics, but  just  as  well  in  other  fields  of  inquiry.  The 
trend  of  economic  theories  may  not  be  what  we  expect. 
The  extent  to  which  a  revision  is  feasible  or  advisable  may 
be  doubtful  to  all  of  us.  But  it  is  logical  that  we  specu- 
late on  its  probable  course,  and  point  out  some  of  the 
changes  of  belief  or  emphasis  upon  which  many  appear 
to   agree   even   now. 

279 


280  A  CRITIQUE  OF  ECONOMICS 

J  In  matters  of  methodology  there  seems  ground  for  re- 
I  jecting  the  following,  viz.,  first,  the  distinction  between 
causal  and  functional  relations  in  any  science;  secondly, 
the  distinction  between  causation  and  law,  except  as  as- 
pects of  one  and  the  same  situation ;  third,  the  distinction 
between  law  and  correlation  in  the  sense  that  one  is  causal, 
but  not  the  other,  or  that  only  the  first  is  of  a  scientific 
character;  fourth,  the  division  of  the  data  of  experience 
into  ideographic  and  nomothetic,  as  if  the  existence  or 
absence  of  laws  could  be  demonstrated  a  priori ;  fifth,  the 
idea  that  certainty  inheres  in  physical  processes,  but  is 
impossible  elsewhere,  so  that  experimental  induction  yields 
infallible  generalizations,  while  statistical  induction  is  al- 
together untrustworthy;  sixth,  the  sharp  separation  of 
induction  and  deduction,  and  the  designation  of  economics 
as  a  deductive  science  with  a  purely  conceptual  basis ; 
seventh,  the  derivation  of  social  laws  of  any  kind  from 
psychology  or  physiology;  eighth,  the  associational- 
hedonisjic  theory  of  valuation  and  motivation ;  ninth,  the 
recognition  of  two  kinds  of  economic  laws,  the  static  and 
the  dynamic,  with  the  implication  that  the  former  is  either 
self-sufficient  or  a  necessary  adjunct  of  economic  research; 

Land  tenth,  the  belief  in  universally  true  quantitative  laws 
of  economics. 

These  are  articles  of  faith  that  cannot  be  considered 
tenable  at  the  present  time,  and  the  errors  of  which  have 
already  been  brought  up  for  discussion.  But  others  now 
deserve  special  stress. 

Thus  we  must  disapprove  of  the  identification  of  shares 
(incomes)  with  prices,  or  of  reducing  all  classes  of  in- 
comes to  four,  named  wages,  profits,  interest,  and  rent. 
For  the  derivation  of  laws  of  price  from  a  study  of  human 


LINES  OF  RECONSTRUCTION  281 

nature  must  be  held  impossible ;  and  with  this  recognition 
of  the  difference  between  problems  of  economics  and  those 
of  psychology  will  come  also  a  different  conception  of 
laws  of  price,  respectively  incomes.  Supply  and  demand, 
to  be  sure,  will  still  figure  as  psychic  facts  whose  signifi- 
cance for  economists  is  far  from  negligible,  but  in  trying 
to  determine  prices  of  goods  and  services  we  shall  relate 
the  physical  view  of  supply  and  the  pecuniary  measure- 
ment of  demand  to  the  valuation  aspects  which  hereto- 
fore have  been  given  undivided  attention,  especially  by 
Marginists. 

Utilitarians,  that  is  the  friends  of  an  objective  view  of 
exchange  values  and  productivities,  will  have  to  abandon 
the  hope  of  explaining  prices  by  a  deductive  method 
even  while  clinging  to  expenses  as  a  distinct  category  of 
determinants.  Instead  of  this  statistical  measurements 
may  render  important  service,  unless  indeed  the  quantita- 
tive analysis  of  social  correlations  is  to  be  displaced  en- 
tirely by  a  qualitative  one.  But  this  is  a  point  not  to  be 
settled  in  a  jiffy. 

Marginists  in  particular  will  be  hard  hit  by  their  con- 
sistent exploitation  of  a  relatively  few  premises  taken 
over  from  the  eighteenth  and  early  nineteenth  centuries. 
Since  the  sensationalistic  doctrine  of  valuation,  e.g.,  has 
been  thrown  into  the  discard,  they  must  give  up  also  the 
hope,  not  only  of  explaining  prices  psychologically,  but 
of  establishing  a  more  or  less  definite  ratio  between  volume 
and  value.  In  the  past  this  reliance  upon  principles  of 
utility  has  side-tracked  economists  in  their  quest  for  laws, 
besides  causing  some  of  them  to  confuse  the  physical  as- 
pects of  production  or  value  with  the  psychic,  so  that  a 
logical  impasse  seemed  to  have  been  bridged  when  in  reality 


282  A  CRITIQUE  OF  ECONOMICS 

it  was  past  mending.  Thus  purchasing  power,  output  of 
things  and  services,  and  physiological  states  during  or 
immediately  after  consumption  were  often  enough  con- 
founded with  psychic  data  that  alone,  by  previous  proc- 
lamation, concerned  the  Marginist.  This  blunder  will 
hereafter  be  impossible.  The  enlistment  of  psycholo- 
gists in  the  service  of  economics,  while  continuing  in  some 
form,  will  have  a  very  different  purpose. 

But  furthermore,  Marginists  will  have  no  reason  to  re- 
tain the  margin  as  a  standard  for  measuring  differentials, 
seeing  that  their  psychological  premises  have  fallen  into 
disrepute.  Measurement  will  become  more  important  than 
ever  but  it  will  not  be  of  a  psychological  character.  Nor 
will  there  be  any  grounds  for  accepting  a  theory  of  impu- 
tation, either  as  a  causal  or  as  an  ethical  fact,  in  order 
to  find  thereby  the  components  of  joint-value  or  the  spe- 
cific contributions  made  by  an  individual  agent  of  pro- 
duction. Whatever  worth  will  attach  to  an  allocation  of 
values,  it  will  not  be  logical;  nor  should  it  give  rise  to 
moralizing  dissertations  on  labor  and  capital. 

What  is  to  be  Retained. — ^As  against  what  is  to  be  ex- 
cluded, however,  economists  will  doubtless  retain  many  of 
the  features  common  to  both  Utilitarianism  and  Margin- 
ism.  Now,  among  these  the  following  deserve  special  men- 
tion, namely  first,  the  acceptance  of  economics  as  a  sci- 
ence; secondly,  some  of  the  principles  or  laws  which  so 
far  have  been  discovered,  and  which  are  perfectly  com- 
patible with  the  change  of  front  urged  in  regard  to 
methodology ;  third,  the  recognition  of  reflection  as  a  dis- 
tinct method,  whose  results  must  always  constitute  a  large 
part  of  economic  truths ;  fourth,  the  admission  of  descrip- 
tive matter,   even  though  it   contain  no   generalizations 


LINES  OF  RECONSTRUCTION  283 

whatsoever,  nor  apply  to  anything  but  the  facts  of  a  given 
regime  or  locality ;  fifth,  a  logical  unification  of  the  prin- 
cipal divisions  of  economics,  first  because  the  events  them- 
selves are  so  inextricably  interlaced,  and  furthermore,  on 
account  of  the  importance  of  valuation  in  any  science  like 
economics ;  sixth,  the  combination  of  a  short-time  with  a 
long-time  viewpoint,  both  however  to  take  facts  as  they 
are,  thus  implying  in  no  wise  a  return  to  a  static  abstrac- 
tion ;  and  finally,  the  rigid,  unqualified  exclusion  of  ethics 
from  economics,  even  when  it  is  felt  that  practical  advice 
of  any  sort  should  be  preceded  by  a  confession  of  moral 
ideals. 

New  Problems  for  Present-Day  Economics. — ^Not  only 
must  these  elements  of  economics  be  deemed  an  indispen- 
sable part  of  future  systems,  but  what  is  more,  we  shall 
have  to  prepare  for  certain  departures. 

In  general,  namely,  there  will  be  need  of  a  purely 
dynamic  viewpoint,  which  aims  at  a  quantitative  correla- 
tion of  as  many  economic  data  as,  in  the  course  of  our 
studies,  prove  to  be  fit  for  such  treatment.  Statistics 
therefore  will  play  a  larger,  not  a  smaller,  part  in  the 
economics  to  come,  and  this  will  tend  to  supplement  the 
qualitative  analysis  of  the  past  with  another  set  of  in- 
ferences now  practically  unknown.  In  the  next  place,  eco- 
nomics should  be  regarded,  not  as  a  catallactics  or  plu- 
tology,  but  as  the  systematic  study  of  all  facts  bearing 
upon  relations  of  weal  and  wealth,  whether  this  concerns 
scarce  or  plentiful  goods.  The  pecuniary  aspects  of  pro- 
duction, distribution,  and  consumption  will  thus  give  way 
to,  or  more  likely  be  supplemented  by,  a  tracing  of  se- 
quences (or  coexistences)  that  acquaint  people  with  so- 
cial interests  and  things,  rather  than  with  competitive 


284  A  CRITIQUE  OF  ECONOMICS 

norms  and  counters  of  currency.  And  finally,  the  logic 
of  our  science  as  well  as  the  trend  of  public  affairs  will 
compel  economists  to  stress  the  national  viewpoint,  to 
point  out  succinctly  the  consequences  of  public  control. 
Hence,  in  place  of  an  abstract  science  of  economics  there 
will  reign  a  political  economy  anchored  largely  in  laws  of 
cosmic  force,  but  carrying  a  super-structure  of  generaliza- 
tions mainly  national  in  scope* 

Such  will  be  the  principal  innovations  in  keeping  with 
the  future  trend  of  economic  theory;  but  certain  details 
may,  tentatively,  here  be  added. 

Under  the  heading  of  Production,  which  should  be 
given  first  consideration  because  of  the  primacy  of  envir- 
onment and  its  independence  of  human  valuations,  the 
following  topics  will  engage  our  attention:  Essentials  of 
human  nature  and  its  modification,  respectively  capacity 
for  modifications,  by  the  learning  process  in  many  indi- 
vidual and  social  aspects ;  the  physical  environment,  nat- 
ural resources,  and  the  chief  facts  of  national  demog- 
raphy ;  capital  as  goods  for  production  in  the  technologi- 
cal sense,  and  the  make-up  of  wealth  in  general,  physical 
volume  of  classes  of  goods  and  of  services  being  studied 
as  well  as  their  relation  to  values  according  to  competitive 
or  coUectivistic  norms;  labor  forces  as  dependent  upon 
population  data  and  upon  educational  facilities,  and  the 
bearing  of  both  upon  supplies  of  labor  kinds  relative  to 
ideals  of  income ;  the  organization  of  the  productive  proc- 
ess notably  in  three  phases,  viz.,  the  technical,  legal,  and 
financial,  and  the  place  of  entrepreneur  or  government  in 
the  system  now  in  force;  principles  determining  national 
productiveness  both  from  the  short-time  and  long-time 
viewpoint;  the  relation  between  production  and  domestic 


LINES  OF  RECONSTRUCTION  285 

and  foreign  trade ;  and  the  ways  and  standards  for  meas- 
uring productivity  in  the  non-pecuniary  sense,  with  due 
regard  for  its  applicability  to  distributive  questions. 

These  will  be  topics  figuring  prominently  in  any  analy- 
sis of  production. 

Under  Price,  as  a  second  division  in  economics,  may  fall 
such  outstanding  facts  as:  The  valuation  process  in  its 
non-monetary  aspects  as  preliminary  to  a  qualitative 
analysis  of  price;  in  the  next  place  the  determination  of 
laws  of  price — if  they  obtain  at  all ! — by  a  correlation  of 
price  with  a  variety  of  events,  and  especially  with:  other 
prices  of  goods  and  services  studied  individually  or  by 
groups,  with  personal  incomes  or  income-classes,  with 
costs  of  the  non-pecuniary,  physical  sort,  with  pecuniary 
expenses,  where  possible,  with  physical  supply  of  goods 
or  laborers,  etc.,  and  with  data  of  foreign  trade. 

These  data  will  be  consulted  as  possibilities  for  discov- 
ering laws  of  price,  apart  from  the  qualitative  analysis 
which  economics  hitherto  has  used  almost  exclusively.  But 
there  remain  as  further  points  for  correlation — to  men- 
tion only  a  few:  ranges  of  price  fluctuation  relative  to 
income  changes ;  movements  of  wholesale  as  against  re- 
tail prices;  the  territorial  extent  of  a  given  price  at  a 
given  time ;  price-level  movements  in  point  of  order,  degree 
of  change,  and  direction,  whether  compared  directly  with 
currency  changes  or  not ;  and  finally  the  study  of  wages, 
rent,  and  interest  in  their  bearing  on  facts  of  production 
and  commodity  prices,  etc. 

In  the  third  place  income  should  be  studied  independent 
of  prices  for  the  loan  of  capital  or  the  lease  of  land,  or 
even  of  the  share  assigned  to  labor,  these  incomes  being 
measured  per  individual  or  classes  of  people  instead  of 


286  A  CRITIQUE  OF  ECONOMICS 

figuring  as  prices  paid  for  services  in  the  open  market. 
For  prices  acknowledgedly  constitute  only  a  part  of  the 
sources  to  which  most  people  may  look  for  income.  From 
this  angle,  then,  incomes  may  reveal  principles  not  de- 
rivable from  prices  of  any  kind,  while  on  the  other  hand 
prices  may  throw  light  on  some  or  on  all  incomes. 

Fourth:  The  problem  of  the  growth  (or  shrinkage)  of 
wealth  will  be  partially  solved  by  inquiry  into  modes  of 
consumption,  into  profit  rates  and  investment  trends,  into 
the  processes  by  which  thrift  becomes  national  pros- 
perity, and  into  the  facts  which  may,  or  may  not,  be 
proven  to  result  in  business  cycles,  these  cycles  having  a 
non-competitive  no  less  than  a  competitive  interpretation. 

In  the  fifth  place,  public  control  is  bound  to  receive 
much  attention  in  future  economic  treatises,  their  revi- 
sion affecting  probably  most  of  all  theories  of  taxation, 
incidence  and  ability  to  pay,  but  also  trading  policies 
among  nations.  Not  only  this,  but  in  addition  new  appli- 
cations may  prove  feasible,  be  it  price-fixation,  or  social 
insurance,  or  vocational  control,  or  regulation  of  invest- 
ment, or  still  other  fields  of  enterprise  which  now  are,  in 
the  main,  a  matter  of  freedom  of  contract.  In  these  and 
further  experiments  the  economist  may  wish  to  be  able  to 
offer  advice.  Whether  he  shall  feel  free  to  do  so  will  de- 
pend upon  his  approach  to  economic  data;  but  that  in 
some  degree  legislators  will  continue  to  utilize  economic 
research  seems  certain.  As  a  science  economics  may  not 
fulfill  the  promises  once  made  with  a  light  heart,  but  as 
an  intensive  study  of  national  facts,  with  a  stress  on  regu- 
larities that  in  a  non-psychical  sense  obtain  over  wide 
areas  and  for  long  stretches  of  time  (however  variable  by 
another  standard!),  economics  may  yield  important  re- 


LINES  OF  RECONSTRUCTION  287 

suits,  offsetting  by  its  usefulness  to  statesmen  what  it 
lacks  in  the  universality  of  its  truths  or  pretensions. 

The  Outlook  in  the  United  States. — Particularly  in  the 
United  States,  it  would  appear,  this  hopeful  outlook  is 
amply  justified  notwithstanding  the  dissensions  among 
the  economists  for  the  moment.  For  here  nearly  all  the 
conditions  exist  that  are  conducive  to  a  rapid  and  original 
development  of  social  science.  A  block  of  resources  no- 
where equaled  in  the  world  is  ours,  and  bids  us  to  further 
effort  on  a  heroic  scale.  The  population  is  sufficiently 
unified  and  organized  technically  to  realize  its  opportuni- 
ties and  perform  its  duties.  Pressing  needs  have  sprung 
up  since  the  World  War,  yet  without  their  jeopardizing 
our  national  existence  or  annulling  earlier  endeavor. 
Education  is  being  popularized  and  made  to  serve  the 
interests  of  the  masses  as  never  before.  Instead  of  idle- 
ness, it  is  labor  for  and  with  others  which  increasingly 
earns  praise  and  tangible  reward.  Intensification  every- 
where is  the  watchword,  and  with  it  a  deepening  of  the 
social  conscience  is  taking  place  which  will  realign  politi- 
cal and  economic  forces.  Solidarity  thus  assumes  a  new 
meaning.  Efficiency  is  subordinated  to  ideals.  Enterprise 
has  new  regulations  to  observe,  but  in  the  long  run  is 
likely  to  benefit  by  them,  besides  improving  the  fortunes  of 
the  average  man. 

Economic  legislation  and  instruction  will  accordingly 
become  more  rather  than  less  important.  The  demand  will 
be  for  persons  who  are  trained  in  matters  economic  and 
know  how  to  distinguish  between  individual  and  social 
norms.  In  high  schools  and  in  colleges  the  economic  ap- 
proach to  life  values  will  be  increasingly  respected  and 
the  cause  of  economic  research  gain  in  proportion.     The 


288  A  CRITIQUE  OF  ECONOMICS 

days  when  economics  could  be  considered  a  set  of  theories 
which  might  challenge  the  speculative  powers  of  a  few 
closet-philosophers,  but  could  have  no  further  interest, 
are  probably  over.  In  an  ever-widening  circle  economic 
topics  are  made  a  subject  of  serious  discussion,  nay, 
the  concern  of  men  who  are  chiefly  responsible  for  na- 
tional prosperity  and  progress. 

All  this  then  means  that  economists  will  have  to  estab- 
lish, with  much  care,  a  broad  basis  on  which  to  erect  their 
edifice  of  generalizations  and  practical  counsel.  If  it  be 
not  without  significance  that  economics  is  the  offspring  of 
philosophy  and  psychology,  neither  should  it  be  hard  to 
comprehend  that  to-day  a  thorough  drill  in  the  funda- 
mentals of  valuation,  in  logic,  ethics,  epistemology,  and 
psychology  is  an  excellent  preparation  for,  and  asset  of, 
the  student  of  economic  problems.  A  sharper  distinction 
between  economics  as  a  science  or  philosophy  of  life  and 
the  so-called  applied  branches  of  economics  may  there- 
fore prove  beneficial  to  all  parties  concerned,  and  this  not 
only  because  the  two  differ  in  aims  or  practical  value, 
but  also  because  of  differences  in  mental  attitude  and  pre- 
requisites for  success.  For  in  the  end  it  must  be  admitted 
— since  the  whole  history  of  thought  is  testimony  to  our 
assertion — that  specialization  gains  at  the  expense  of  a 
certain  spiritual  aloofness  which  characterizes  science 
pure  and  simple. 

It  is  for  economists  everywhere  to  decide  whether  they 
wish  speedy  results  or  an  outlook  that  educates  by  de- 
grees. But  whatever  their  decision,  can  there  be  doubt 
as  to  the  opportunities  for  service.? 


BIBLIOGRAPHY 

INTRODUCTORY  NOTE 

The  following  points  should  be  noted  in  scanning  this  list 
of  references: 

(1)  The  bibliography  is  subjective  rather  than  objective. 
That  is,  it  indicates  roughly  what  kinds  of  literature  helped  to 
shape  the  present  writer's  viewpoint.  No  attempt  is  made 
here  to  give  a  complete  account  of  readings  which  extend  over 
many  years;  nor  can  the  list  be  considered  in  any  measure 
indicative  of  even  the  most  important  works  relating  to  the 
several  subjects.  Much  of  what  is  best  is  not  mentioned,  while 
other  works  of  secondary  significance  are  mentioned  because 
of  the  hints  they  furnished  the  writer.  In  the  main,  then,  this 
bibliography  is  a  sample  of  available  materials  for  a  restate- 
ment of  the  methodological  problem  in  economics.  As  such, 
and  only  as  such,  it  is  offered. 

(2)  No  mention  is  made  of  any  literature  on  the  history  or 
theory  of  economics.  The  writer  has  tried  to  acquaint  himself 
thoroughly  with  it,  and  especially  with  publications  of  the 
last  two  decades.  However,  it  was  felt  on  the  one  hand  that 
a  list  of  such  writings  is  of  no  great  value  in  a  survey  that  is 
chiefly  methodological ;  and  on  the  other  hand  many  references 
are  given  in  the  foot-notes  of  the  first  five  chapters  of  this 
book. 

(3)  A  large  periodical  literature  on  non-economic  subjects 
has  also  been  consulted,  but  with  one  exception  is  not  here 
itemized.  An  exception  was  made  in  the  case  of  psychologi- 
cal journals  because  of  the  data  they  furnished  for  a  refuta- 
tion of  hedonistic  associationism. 

289 


290 


A  CRITIQUE  OF  ECONOMICS 


(4)  The  great  bulk  of  economic  methodology  both  before 
and  since  1900  is  German- Austrian.  Indeed,  it  equals  in 
volume  that  of  all  other  countries  combined.  A  perusal  of  the 
journals  listed  below  will  incidentally  lead  to  this  conclusion, 
although  the  main  purpose  is  of  course  to  show  what  periodi- 
cals were  systematically  gone  over,  in  order  to  secure  light  on 
certain  questions. 

(5)  The  principal  fields  of  literature,  and  the  problems 
they  were  brought  to  bear  on,  are  as  follows : 


Classes  of  Literature 

Psychology 
Epistemology 


Logic 


Methodology 


Made  to  Bear  on  Problems 

OF 

Valuation 

Inductive  Reasoning 

Nature  of  Science:  Law 
Causation  and   Correlation 
Interrelation  of  Sciences 
Statics  and  Dynamics 

Nature  of  Deduction 
Mathematical   Method 
Proof  and  Probability 

Methods  of  Science:  Measure- 
ment 


Ethics 


Scope  and  Limits  of  Statisti- 
cal Induction 
Scope  of  Economics 

Relation    of    Ethics    to    Eco- 
nomics 


BIBLIOGRAPHY  291 

A.     PERIODICALS  USED 

I.     The  Social  Sciences 

1.     German 

For  the  Years 
Archiv    fur   Sazialwissenschaft    und    Sozial- 

politik    1900-18 

Jahrbiicher  fiir  National-CEkonomie  und  Star- 

tistik  (Conrad's)    , 1900-19 

Jahrbuch  fiir  Gesetzgehung,  Verwaltung  und 

Volkswirtschaft    (Schmoller's)    1900-18 

Zeitschrift  fur  Sozialimssenschaft    1898—1915 

Zeitschrift   fiir  die   Gesammte  Staatswissen- 

schaft .  1900-15 

Zeitschrift  fiir  Volkswirtschaft,  Sozial-politik 

und  Ferwoltung,  Wien 1901-15 

2.     French  and  Italian 

Journal  des  Economistes. 1900—12 

Revue   d'Economie   Politique.  .  ., .1900-19 

Giornale  degli  Economisti 1914-19 

S.     British  and  American 

The  Economic  Journal   1900-19 

The  Economic  Review , 1900-15 

American  Economic  Review 1910—21 

Annals  of  the  American  Academy  of  Political 

and  Social  Science ,...., 1900-20 

Journal  of  Political  Economy 1900-20 

Political  Science   Quarterly 1900-20 

Quarterly  Journal  of  Economics.  ... 1900-20 

American  Journal  of  Sociology . 1900—21 

American   Statistical   Association,    Quarterly 

Publications     . 1900-1920 


292  A  CRITIQUE  OF  ECONOMICS 

II.     Psychology  and  Philosophy 
1.     German 

Archiv  fur  Systematische  Philosphie 1895-1917 

Vierteljahrs-schrift      fiir      Wissenschaftliche 

Philosophie   und  Soziologie 1903-18 

2.     British  and  American 

British  Journal  of  Psychology 1904-10  (9  vol.) 

Mind     1901-18 

Journal     of    Philosophy     (Psychology     and 

Scientific   Methods)    1904-18 

American  Journal  of  Psychology 1900-18 

Psychological  Review 1904-18 

Psychological  Bulletin  (Literary  Section  of 

Psych.  Review)   1904-18 

B.     BOOKS 

I.     Psychology 

1.     History 

Klemm,  O.,  "History  of  Psychology"    (transl.  by  Wilm,  E. 

C.  &  Pintner,  R.),  1914. 
Baldwin,  J.  M.,  "History  of  Psychology/'  2  vols.,  1913. 
Moore,  J.   S.,  "Foundations  of  Psychology/'   1921    (largely 

historical) . 
Warren,  H.  C,  "History  of  Association  Psychology/*  1921. 

2.     Associational  Psychology 
Mill,    Jas.,    "Analysis    of    the    Phenomena    of   the    Human 

Mind,"  edit,  of  J.  S.  Mill  and  Bain,  A.,  1869. 
Brown,  Th.,  "Lectures  on  Philosophy  of  Human  Mind,"  edit. 

of   1830  and   1854. 
Bain,  A.,  "The  Senses  and  the  Intellect,"  edit,  of  1872. 
Herbart,  J.  F.,  "Lehrbuch  zur  Psychologic,"  1816  (edit,  of 

Hartenstein,  G.,  Saemmtliche  Werke,  vol.   5). 


BIBLIOGRAPHY  293 

S.     Modem  General  Texts 
JoDL,  F.,  "Lehrbuch  der  Psychologic/*  edit,  of  1916. 
Lipps,  Th.,  "Lcitfaden  der  Psychologic/'  1906. 
WiTASEK,  St.,  "Grundlinien  der  Psychologic/'   1908. 
Angell,  J.  R.,  "Introduction  to  Psychology/'  1918. 
Calkins,  M.  W.  (Miss),  "First  Book  in  Psychology/*  4.  edit. 

of  1914. 
DuNLAP,  K.,  "A  System  of  Psychology,"  1912. 
DuNDAP,  K.,  "Outlines  of  Psychobiology/'  1917. 
Hunter,  W.  S.,  "General  Psychology,"   1919. 
MuENSTERBERG,    H.,    "Psychology,    General    and    Applied/* 

1914. 
PiLLSBURY,  W.  B.,  "Fundamentals  of  Psychology,"  1916. 
Russell,  B.,  "The  Analysis  of  Mind/'  1921. 
Tansley,  a.  G.,  "The  New  Psychology  and  Its  Relation  to 

Life/*  1920. 
TiTCHENER,  E.  B.,  "A  Textbook  on  Psychology/*  1910. 
Ward,  Jas.,  "Psychological  Principles,"  1920. 
Warren,  H.  C,  "Human  Psychology,"   1920. 
Watson,  J.  B.,  "Psychology  from  the  Standpoint  of  a  Be- 

haviorist/*  1919. 

4.     Psycho-Physics 
Fechner,  G.,  "Elemente  der  Psycho-Physik,"  3.  edit.,  1860. 
Fechner,   G.,   "Revision   der   Haupt-Probleme    der    Psycho- 
Physik/'   1882. 
Mueller,  G.  E.,  "Grundlegung  der  Psycho-Physik,"   1878. 

5.     Abnormal  Psychology 

Freud,  S.,  "General  Introduction  to  Psycho- Analysis'* 
(transl.  by  G.  St.  Hall),  1920. 

GoDDARD,  H.  H.,  "Psychology  of  the  Normal  and  Abnormal,** 
1919. 

SiDis,  B.,  "Foundations  of  Normal  and  Abnormal  Psy- 
chology/' 1914. 


294  A  CRITIQUE  OF  ECONOMICS 

6.     Instincts  and  Emotions 

Storring,    G.,    "Psychologic    des    Mcnschlichen    Gefiihlslc- 

bcns/*  1916. 
Lipps,  Th.,  "Vom  Fiihlcn,  Wollcn,  und  Dcnken/'  1907  (Psy- 

chologische  Untcrsuchungen,  2  vols.,  1912). 
Barrett,    E.    B.,    "Motive-Force    and    Motivation-Tracks," 

1911. 
Bernard,  L.  L.,  "The  Misuse  of  Instinct  in  Social  Sciences," 

in  Psychological  Review,  1921. 
Crile,  G.  W.,  "Origin  and  Nature  of  the  Emotions,"  1915. 
Drever,  Jas.,  "Instinct  in  Man,"  1917. 
Faris,  E.,  "Are  Instincts  Data  or  Hypotheses.^"  in  American 

Journal  of  Sociology,  1921. 
Hocking,  W.  E.,  "The  Dilemma  in  the  Conception  of   In- 
stincts," in  Journal  of  Abnormal  and  Social  Psychology, 

1921. 
Hunter,  W.  S.,  "Modification  of  Instincts  from  Standpoint 

of  Social  Psychology,"  in  Psychological  Review,   1920. 
Kantor,  J.,  "A  Naturalistic  Description  of  the  Emotions," 

in  Psychological  Review,  1921. 
McDouGALL,  Wm.,  "Introduction  to  Social  Psychology,"  7. 

edit,  of  1912. 
Morgan,  C.  L.,  "Instinct  and  Experience,"  1912. 
Shand,  a.  F.,  "Foundations  of  Character,"   1914. 
Thorndike,  E.  L.,  "Original  Nature  of  Man"  (Volume  One 

of  Educational  Psychology),  1913. 
Trotter,  W.,  "Instincts  of  the  Herd  in  Peace  and  War," 

1916. 

7.     Affective  View  of  Thought  and  Action 

Maier,  H.,  "Psychologic  eines  Emotionalen  Denkens,"  1908. 
Ribot,  Th.,  "Psychology  of  Emotions,"  1897. 
RiBOT,  Th.,  "Essai  d'Imagination  Creatice,"  1900. 


BIBLIOGRAPHY  295 

8.     Senses  and  Pain-Pleasure 

HoLLiNGwoRTH,  H.  L.,  and  Poffenberger,  a.  T.,  "The 
Sense  of  Taste,"  1917. 

Marshall,  H.  R.,  "Pain,  Pleasure  and  Esthetics,"  1894. 

Behan,  R.  J.,  "Pain,  Its  Origin,  Conduction,  Perception,  and 
Diagnostic  Significance,"  1916. 

Meyer,  M.,  "Nervous  Correlate  of  Pleasantness  and  Un- 
pleasantness," in  Psychological  Review,  1908. 

MooRE,  H.  Th.,  "Pain  and  Pleasure,"  1917- 

WoHLGEMUT,  A.,  "Plcasurc  and  Unpleasure,"  in  British 
Journal  of  Psychology,  1919. 

Young,  P.  T.,  "Pleasantness  and  Unpleasantness  in  Rela- 
tion to  Organic  Response,"  in  American  Journ.  of  Psy- 
chology, vol.  32. 

Nadejde,  B.,  "Biologische  Theorie  der  Lust  and  Unlust/* 
1908. 

9.     Valuation 

Anderson,  B.  M.,  "Social  Value,"  1911. 

Baldwin,  J.  M.,  "Social  and  Ethical  Interpretations,"  1897. 

BooDiN,   J.   E.,  "Value  and  Social   Interpretation/'  in  Am. 

Journal  of  Sociology,   1916. 
Cooley,  Ch.  H.,  "The  Social  Process"  (Parts  Two  and  Six), 

1918. 
P ARRIS,  M.,  "Total  Utility  and  Economic  Judgment,"  1909. 
PicARD,  M.,  "Psychological  Basis  of  Value,"  in  Journal  of 

Philosophy,  Psycholgy,  and  Scientific  Methods,  1920. 
Urban,  W.  M.,  "Valuation,  Its  Nature  and  Laws,"  1909. 
Brogan,  a.  p.,  "Urban's  Axiological  System,"  in  Journal  of 

Philosophy,  1921. 
Watkins,  J.  B.,  "Welfare  as  an  Economic  Quantity,"  1914. 
Brentano,  L.,  "Entwicklung  der  Wertlehre — ,"   1908    (Sit- 

zungsberichte    der    Kgl.    Bayr.    Akademie    der    Wissen- 

schaften,  3.  Abhandlung,  1908). 


296  A  CRITIQUE  OF  ECONOMICS 

Ehrenfels,  Chr.  v.,  "System  der  Wert-Theorie/*  2  vols., 

1897. 
Frischeisen-Koehler,  M.,  "Grundlegung  der  Wert-Theorie," 

in  Jahrbiicher  der  Philosophie,  1914. 
Gottl-Ottlilienfeld^  F.  von,  "Der  Wertgedanke,  Ein  Ver- 

hiilltes  Dogma—/'  1897. 
Haering,  Th.,  "Untersuchungen  zur  Psychologie  der  Wer- 

tung,"  in  Archiv  fuer  die  Gesammte  Psychologie,  1913. 
Kraus,  O.,  "Zur  Theorie  des  Wertes,  1901. 
Kreibig,  J.  C,  "Psyehologische  Grundlegung  eines  Systems 

der  Wert-Theorie/'  1902. 
Krueger,  F.,  "Begriff  des  Absolut  Wertvollen  als  Grundbe- 

griff  der  Moral-Philosophie,"  1898. 
Meinong,  a.,  "Psychologisch-Ethische  Untersuchungen  zur 

Wert-Theorie,"  1894. 
Meinong,  A.,  "Ueber  Annahmen,"  1910. 
MuENSTERBERG,  H.,  "Philosophic  Der  Werte,"  1908. 
SiMMEL,  G.J  "Philosophic  des  Geldes,"  1907. 


10.     Valuation  and  Business 

SoMBART,  W.,  "Quintessence  of  Capitalism"  (transl.  by  Ep- 
stein, M.),  1915. 
Taussig,  F.  W.,  "Inventors  and  Money-Makers,"  1915. 
Veblen,  Th.,  "Theory  of  Business  Enterprise,"  1904. 


11.     Psychology  of  Marginism 

Roche-Agussol,  M.,  "La  Psychologie  Economique  Chez  les 

Anglo- Americains,"   1918. 
Roche-Agussol,  M.,  "Etude  Bibliographique  des  Sources  de 

la  Psychologie  Economique  Chez  les  Anglo-Americains," 

1919. 


BIBLIOGRAPHY  297 

II.  Epistemology  and  Metaphysics 
1 .     General 

Cassirer,  E.,  "Das  Erkenntnisproblem  in  der  Philosophic  und 

Wissenschaft  der  Neueren  Zeit/'  2  vols.,  1906. 
Stein,    L.,    "Philosophische    Stroemungen    der    Gegenwart," 

1908. 
Kant,  I.,  "Kritik  der  Reinen  Vernunft,"  1781. 
Schopenhauer,  A.,  "The  World  as  Will  and  Idea"   (transl. 

by  Haldane,  R.  B.,  and  Kemp,  J.,  1891),  1818. 
Becher,  E.,  "Naturphilosophie,"  1914. 

EiSLER,  R.,  "Einfiihrung  in  die  Erkenntnistheorie,"   1907. 
Mach,  E.,  "Erkenntnis  und  Irrtura,"  1905. 
Nelson,    L.,    "Ueber    das    Sogenannte    Erkenntnisproblem,*' 

1908. 
Reininger,  R.,  "Philosophic  des  Erkennens,"  1911. 
Rickert,  M.,  "Grenzen  der  Naturwissenschaftlichen  BegrifFs- 

bildung,  1902.  , 

Windelband,  W.,  "Einfiihrung  in  die  Philosophie,"  1914. 
Bergson,  H.,  "Time  and  Free  Will"   (transl.  by  Pogson,  F. 

L.,  1913),  1889. 
BouTROux,  E.,  "Contingency  of  the  Laws  of  Nature,"  (transl. 

by  Rothwell,  F.,  1916)   1874. 
Enriques,   F.,   "Problems   of   Science"    (transl.   by   Mrs.    K. 

Royce,  1914),  1906. 
Varisco,   B.,   "Great   Problems"    (transl.   by   Lodge,    R.    C, 

1914),  1901. 
Campbell,  N.  R.,  "Physics,  The  Elements,"  1920. 
Eddington,  a.  S.,  "Space,  Time,  and  Gravitation,"  1920. 
Pearson,   K.,   "Grammar  of  Science,"   editions  of   1900  and 

1911. 
Russell,  B.,  "Our  Knowledge  of  the  External  World,"  1914. 
Russell,   B.,   "Problems   of   Philosophy"    (Home   University 

Library  edit.). 


298  A  CRITIQUE  OF  ECONOMICS 

Schiller,  F.  C.  S.,  "Humanism/'  1912. 

Whitehead,  A.   N.,   "Inquiry  Concerning  the   Principles  of 

Natural  Knowledge,"  1919. 
"Essays  in  Critical  Realism,"  1920  (by  Drake,  D.,  Lovejoy, 

A.  O.,  Pratt,  J.  B.,  Rogers,  A.  K.,  Santayana,  G.,  Sellars, 

R.  W.,  and  Strong,  C.  A.). 

2.     On  Nature  of  Social  Science 

Gottl-Ottlilienfeld,  F.  von,  "Die  Herrschaft  des  Wortes/* 
1901. 

Heymans,  G.,  "Gesetze  und  Elemente  des  Wissenschaftlichen 
Denkens,"  edit,  of  1905. 

Janssen,  O.,  "Wesen  der  Gesetzesbildung,"   1910. 

KisTiAKOWSKi,  Th.,  "Gesellschaft  und  Einzelwesen,"  1899. 

Muensterberg,  H.,  "Philosophic  der  Werte,"  1908  (Ameri- 
can version  as  "Eternal  Values,"  1909). 

RicKERT,  H.,  "Kultur-  und  Natur-Wissenschaft,"  3.  edit,  of 
1915. 

Stammler,  R.,  "Die  Lehre  von  dem  Richtigen  Recht,**  1902. 

Windelband,  W.,  "Geschichte  und  Naturwissenschaft,"  1894. 


III.    Logic 

1.     General 

Bain,  A.,  "Logic,  Deductive  and  Inductive,'*  edit,  of  1874. 

Bode,  B.  H.,  "Outlines  of  Logic,"  1910. 

Bosanquet,  B.,  "Logic,  A  Morphology  of  Knowledge,"  2  vols., 

1888. 
Gibson,  W.  R.  B.,  "The  Problem  of  Logic,"  1908. 
Hegel,  G.  W.   F.,  "Logic"    (transl.   by  Wallace,  W.,   1912, 

from  "Encyclopedia"  of   1817). 
Hibben,  J.  G.,  "Logic,  Deductive  and  Inductive,"  1896. 
Husserl,  E.,  "Logische  Untersuchungen,"  1900. 
Joseph,  H.  W.  B.,  "Introduction  to  Logic,"  1916. 


BIBLIOGRAPHY  299 

Keynes,  J.  M.,  "A  Treatise  on  Probability/'  1921. 

Lewis,  C.  L,  "A  Survey  of  Symbolic  Logic,"  1918. 

Lodge,  R.  C,  "Modern  Logic,"  1917. 

Mercier,  Ch.,  "A  New  Logic,"  1912. 

Mill,  J.  S.,  "A  System  of  Logic,  Ratiocinative  and  Induc- 
tive, 1843. 

Schiller,  F.  C.  S.,  "Formal  Logic,"  1912. 

SiDGWicK,  A.,  "The  Use  of  Words  in  Reasoning,"  1901. 

SiDGWiCK,  A.,  "Elementary  Logic,"  1914. 

SiGWART,  Ch.,  "Logik,"  2.  edit,  of  1889-93. 

Venn,  J.,  "Principles  of  Empirical  and  Inductive  Logic/' 
1889. 

WiNDELBAND,  W.,  "Logic"  (in  Encyclopedia  of  Philosophi- 
cal Sciences),  1913. 

2.     Psychology  of  Reasoning 

Betz,  W.,  ''Psychologic  des  Denkens,"  1918. 
Dewey,  J.,  "How  We  Think/'  1910. 
Jastrow,  J.,  "Psychology  of  Conviction/'   1918. 
PiLLSBURY,  W.  B.,  "Psychology  of  Reasoning/'  1910. 


IV.     Methodology 

Note:  Much  of  the  material  on  this  subject  will  be  found 
also  in  works  on  Epistemology  and  Logic,  as  given  under  II 
and  III. 

1.     Method  in  General 

Clifford,  W.  K.,  "On  the  Aims  and  Instruments  of  Scien- 
tific Thought/'  1872. 

Jevons,  W.  S.,  "Principles  of  Science/'  3.  edit,  of  1879. 

PoiNCARE,  H.,  "Science  and  Hypothesis"  (W.  Scott  Pub. 
Co.),  1905. 

West  AWAY,  F.  W.,  "Scientific  Method,"  1912. 


300  A  CRITIQUE  OF  ECONOMICS 

2.     Methods  of  Social  Science  and  Economics 

Amonn,   a.,   "Objekt   und  GrundbegrifFe   der   Theoretischen 

Nationalokonomie,"  1912. 
DuRCKHEiM,  E.,  "Les  Regies  de  la  Methode  Sociale/'  3.  edit. 

of  1904. 
Keynes,  J.  N.,  "Scope  and  Method  of  Political  Economy/' 

1891. 
Menger,  C.J  "Untersuchungen  iiber  die  Methode  der  Sozial- 

wissenschaften  und  der  Politischen  Oekonomie — /*  1883. 
SiMiAND,    F.,    "Methode    Positive    en    Science    Economique," 

1912. 
Small,  A.  W.,  "Meaning  of  Social  Science/'  1910. 
Spann,    O.,    "Logische    Aufbau    der    Nationalokonomie — /* 

1908. 
Stolzmann,   R.,   "Grundziige   einer   Philosophic   der   Volks- 

wirtschaft/'  1920. 
ScHUMPETER,  J.,  "Wcscn  und  Hauptinhalt  der  Theoretischen 

Nationalokonomie/'  1908. 
Tarde,  G.,  "La  Logique  Sociale/'  1895. 
WuNDT,  W.,  "Logik/'  edit,  of  1895,  vol.  Ill,  chs.  3-4. 

3.     Statistics  as  Method 

BowLEY,  A.  L.,  "Elementary  Manual  of  Statistics/'  1910. 
Da  VIES,  G.  R.,  "Introduction  to  Economic  Statistics,"   1921. 
Fisher,    A.,    "The    Mathematical    Theory   of    Probabilities" 

(transl.  by  Miss  Ch.  Dickson),  edit,  of  1922. 
FoRCHER,    H.,    "Die  Statistische  Methode  als  Selbststandige 

Wissenschaft/'  1913. 
Keynes,  J.  M.,  "A  Treatise  on  Probability,"  1921. 
Keyser,  C.  J.,  "Mathematical  Philosophy,"  1922. 
King,  W.  I.,  "Elements  of  Statistical  Method,"  1911. 
Lexis,   W.,    "Abhandlungen   zur    Theorie   der   Bevolkerungs- 

und  Moral-Statistik,"   1903. 


BIBLIOGRAPHY  301 

Meitzen,  a.,  **Geschichte,  Theorie,  und  Technik  der  Statis- 
tik"  (transl.  by  Falkner,  R.  P.),  1891,  published  by 
American  Academy  of  Political  and  Social  Science. 

Mitchell,  W.  C,  "The  Making  and  Using  of  Index  Num- 
bers/' being  Part  I  of  Bulletin  No.  284  of  Bureau  of 
Labor  Statistics,  Oct.,  1921. 

RuEMELiN,  G.,  "Reden  und  Aufsatze,"  vol.  I,  1875. 

Secrist,  H.,  "Introduction  to  Statistical  Methods,"  1917. 

Sterzinger,  O.,  "Zur  Logik  und  Naturphilosophie  der 
Wahrscheinlichkeitslehre,"  1911. 

Venn,  J.,  "Logic  of  Chance,"  3.  edit,  of  1888. 

Weld,  L.  D.,  "Theory  of  Errors  and  Least  Squares,"  1916. 

Yule,  G.  V.,  "Introduction  to  Theory  of  Statistics,"   1911. 

Zizek,   F.,   "Statistical  Averages"    (transl.   by   Persons,   W. 

M.),  191S. 

V.     Ethics 

De  Laguna,  Th.,  "Introduction  to  Science  of  Ethics,"  1917. 

Dewey,  J.,  "Human  Nature  and  Conduct,"  1922. 

Dewey,  J.,  and  Tufts,  J.  H.,  "Ethics,"  1908. 

Everett,  W.  G.,  "Moral  Values,"  1918. 

Green,  Th.  H.,  "Prolegomena  to  Ethics,"  5.  edit,  of  1906. 

Hayes,  E.  C,  "Sociology  as  Ethics,"  1921. 

Jodl,  F.,  "Geschichte  der  Ethik  in  der  Neueren  Philosophic," 

edit,  of  1906. 
Kant,  I.,  "Kritik  der  Praktischen  Vernunft,"  1788. 
Murdoch,  J.  G.,  "Economics   as   Basis   of   Living  Ethics," 

1913. 
Paulsen,  F.,  "A  System  of  Ethics"  (transl.  by  Thilly,  F.), 

1899. 
SiDGWicK,  H.,  "Methods  of  Ethics,"  4.  edit,  of  1890. 
SiMMEL,  G.,  "Einleitung  in  die  Moralwissenschaft,"  2  vols., 

1893. 
Smith,  J.  H.,  "Economic  Moralism,"  1917. 
Stephen,  L.,  "The  Science  of  Ethics,"  1882. 


INDEX 


Analogy,   as  basis  of  inference, 
156-59 
in  statistics,  228 
Association  of  ideas,  and  hedon- 
ism, 45-8 
and    hypothecation,   210 
Averages  in  statistics,  218-21 

Capital,  definitions  of,  113-15 

as  cost-item,  116-18 
Catallactics  is  untenable,  251 
Causation,    defined,    181 

specific,    182 

as  law  in  one  aspect,  184 

plurality    of,    185-86 

versus    will,    188-89 

in  social  relations,  190-93 

in   statistics.,  223-24 

and  imputation  of  values,  244- 
45 
Classical    economics,    chief    doc- 
trines,  4-6 

and  marginism,  7-8 
Competition    and    monopoly    as 

premises  in  economics,  81-3 
Comte,  his  idea  of  statics,  263-65 
Conditions,  as  modifiers  of  law  of 

nature,   170-71 
Consumption  in  economics,  128-30 
Correlation,  versus  law,  179-80 

and  event-complexes,  178 

and  causation,  190-93 

and  chance,  196-97 

and  statistics,  221-22 
Cost  and  price,  94 

Deduction,    formal,    148-50,    and 
156 
and  induction,  159 
in  scientific  work,  160-61 


Definitions,  basic  ones  in  eco- 
nomics, 136-39  (and  Table 
Three) 

Demand  as  determining  price,  85- 
92 
and  supply  defined,  83-5 

"Determine,"  meaning  of  word, 
78 

Diminishing  returns,  132-34 

Diminishing  utility  or  value  not 
measurable,  75 

Distribution,  nature  of  problem, 
101-06 
utilitarian      versus       marginal 
view,  106-09 

Dividend  in  distributive  analysis, 
102 

Dynamic  economics,  261-71.  See 
also  statics 

Economics,  founders'  view  of  sci- 
ence, 2-4 

logical  questions  today,  14;  31- 
7;   143-46 

scope  of,  249-60 

static-dynamic  question,  260-71 

applied  as  science,  250-60 

methods  of,  272-78 

its  untenable  doctrines,  279-82 

new  problems  for  investigation, 
283-86 

controverted  points  today,  10-12 
Enumeration,  as  inductive  prin- 
ciple, 152-56 

and  statistics,  225-27 
Ethics,  and  economics,  253-59 

source  of  its  norms,  256-59 
Event-complexes  defined,   178 
Expenses  and  price,  95-6 
Experimentation,    202-03;    207-11 


303 


304 


INDEX 


Feelings  and  sensation,  46-7 ;  51-4 

Hedonism,   theory,   45-50 

not  the  only  possible  ethics,  72-3 
Herbart's  psychology,  18-19 
Hume,   on  inference   and  causa- 
tion, 151;  156-7 

Impatience  and  capital,  117-19 
Imputation  of  values,  244-45 
Induction,  Hume's  view,  151;  156 

physiological  aspects,  152-56 

and  probability,  161-63 
Instincts,  modem  view,  68-9 
Interest,  points  in  determination 
of  rate,  113-22 

Law  of  nature,  defined,  78,  165, 

177 
quantitative      and      qualitative 

make-up,  166-70 
conditions  of,  170-71 
subjective  aspects,  172-76 
versus  correlation,  178-80;  224- 

25 
Lexian  series  and  induction,  229- 

30 

Margin,  in  price  analysis,  97-100 
kinds  of.  Tables  One  and  Two 
in  distributive  analysis,  122-28 
Marginism,    points    in    common 
with  classical  economics,  7-8 
untenable  doctrines,  281-82 
Mathematical  method  in  econom- 
ics, 275-77 
Methodology,      classification      of 
sciences,  199 
experimentation,  202-03;  207 
statistics,  211-31 
reflection  as  method,  231-35 
Methodology  of  economics,  essen- 
tial points,  26-8 
recent  German  controversy,  28- 

30 
methods,   272-78 
Mill,   James,   and   his   theory   of 

valuation,  43-50 
MiU,    J.    S.,    and    his    economic 
methodology,  5-7 
and  his  idea  of  statics,  263-65 


Physiocratic  view  of  social  sci- 
ence, 2-3 
Pleasure,  in  sensationalistic  psy- 
chology, 46-50 
modern  view,  53-7 
Premises    in    economics,   psycho- 
logical, 43-50 
non-psychological,  80-83 
Price,  measurement  of,  78 
defined,  79 

determination  by  orthodox  eco- 
nomics, 85-100 
determination   in   a   new   way, 
285 
Private  property  and  contract  in 

economics,  80-1 
Probability  in  statistics,  226-30 
Production,  orthodox  view  criti- 
cised, ch.  5 
Productivity,  as  distributive  con- 
cept, 110-13;  120-22 
as  law  of  return,  131-35 
Psychology,  recent  developments 
in,  17-21 
and   economics,  251 
Purchasing  power  and  price,  89-92 

Reconstructions  in  economics,  ch. 
10 

Science,  defined,  236-39 

nomothetic  versus  ideographic, 

240-41 
natural  versus  social,  243 
principles    for   their    delimita- 
tion, 245-7 
Sensations  not  measurable  abso- 
lutely, 57-8 
Sensationalism,  and  orthodox  eco- 
nomics, 22-3 
as  theory  of  valuation,  43-50 
refuted  by  modern  psychology, 
50-73 
Shares  and  sharers  in  distributive 

analysis,  102-05 
Smith,  Adam,  on  social  science, 

2-3 
Sociology  and  economics,  252-53 
Standards  in  scientific  measure- 
ment, 203-06 
Static    economics,    early    views, 
261-65 


INDEX 


305 


static  economics,  early  views,  not 

tenable,  269-71 
Statistics,  field  of,  212-15 

methods  of  measurement,  216- 

21 
and  averages,  219-21 
and  induction,  222-30 
and  economics,  273-75 
Substitution  as   principle   of  in- 
ference, 157-58 
Supply,   defined,  83-5 

as  price  determinant,  92-6 
Syllogism,  148-50 

"Tendencies,"  meaning  of,  244 
Trial  and  error  method,  200-01 

Unit,  in  distributive  analysis,  106 
of  correlation  in  science,  167- 
70 


Unit,     of    time    and    space,     in 
science,  180,  187-88 
of    correlation    and    statistics, 
212-13;  216-17 

Valuation,    according    to    classi- 
cists, 43-50 
modern  view  of  psychology  of, 

50-73 
cognitive  aspects,  60-66 
volitional  aspects,  67-73 
Value  in  economics,  136-39 
Variation  as  experimental  meth- 
od, 207-08 

Wages  and  profits  in  marginism, 

109-11 
Wants,  not  measurable  by  psy- 
chology, 74-5 
and  price,  85-92 


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